Why due diligence by investors can still fail to uncover red flags, corporate governance issues & More Trending News

 

While due diligence can try to scale back some threat, Assoc Prof Theseira mentioned that funding selections are sometimes “really driven by narratives and conventional wisdom”.

“We would possibly assume that the folks investing our cash are geniuses who’ve command of an unlimited array of knowledge and figures, and are ready to choose the perfect investments from the almost infinite array of potential investments on the market, however they’re human identical to the remainder of us.

“They rely on mental shortcuts, personal networks, the news media, even gossip, to figure out what to target for investing,” he mentioned, including that this was particularly so for early-stage investing the place “very little” onerous knowledge is on the market.

BALANCING GOVERNANCE AND GROWTH

Singapore Institute of Directors governing council member Howie Lau and vice-chairman Adrian Chan additionally suggested investors to take a look at month-to-month or quarterly monetary statements and audited annual statements, on prime of contemplating whether or not the investee firm has a “qualified, diversified and independent” board.

Investors must also take a look at key consumer and partnership agreements together with issues on termination, legal responsibility, liquidated damages and mental property; and employment or service contracts for the founders and key workers.

These ought to embrace share schemes and non-competition restrictions.

Mr Lau and Mr Chan additional highlighted the significance of understanding the corporate’s fundraising processes and phrases for investments, which may embrace issues on exit clauses, choice shares, convertible notes and future financing rounds, in addition to board obligations, delegation and approval limits.

The stress for a enterprise to scale up quickly can current governance challenges, they mentioned, including that start-ups are “naturally oriented” in direction of progress, however not in direction of controls and processes.

“The board should build core values in the enterprise early. Values become actions, and actions become habits. A strong culture and set of company values will be key foundations of any business,” mentioned Mr Lau and Mr Chan.

Company founders and investors ought to intention for a stage of governance that’s acceptable to the maturity and growth of the corporate, and see governance as complementary to sustained progress relatively than a supply of friction, they mentioned.

Dr Kuo mentioned the lesson for retail investors is that they need to solely ever make investments with cash they can afford to lose.

Retail investors ought to by no means depend on the truth that well-known enterprise capital and institutional investors have invested in an organization, to determine that it could even be a great funding for themselves, mentioned Prof Mak.

“Their interests and investment strategies are not necessarily the same,” he famous.

“Ultimately, retail investors should never put all their eggs in one basket, and they should be very careful about investing in non-traditional assets like crypto.”

Why due diligence by investors can still fail to uncover red flags, corporate governance issues

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Why due diligence by investors can still fail to uncover red flags, corporate governance issues

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Why due diligence by investors can still fail to uncover red flags, corporate governance issues

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