Pre-Employment vs. Pre-Investment Due Diligence

When evaluating due diligence and background check providers, it’s easy to conflate pre-employment background checks with pre-investment reputational due diligence. While both may leverage similar sources and verification methods, they serve distinct purposes. That’s why choosing a solution tailored to your specific use case is crucial. 

Differences in the Types Of Research

The primary goal of pre-investment due diligence is to assess reputational, legal, and financial risk before committing capital, whereas the goal of pre-employment research is to assess a candidate’s trustworthiness and qualifications for a role. Each type of search also has different stakeholders, so the information your organization might need to make the best business decision will be evaluated by teams with different requirements. This underscores the importance of selecting the right product. Using pre-employment due diligence for pre-investment purposes, and vice versa, may not be the most effective approach.

Below is a comparison of the scope and focus areas of each type of due diligence:

Research Scope

🧾 Subjects

Pre-Investment: Individuals (e.g., founders, executives), entities, beneficial owners, prior companies Pre-Employment: Individual job applicants

💰 Financial History

Pre-Investment: Deep review of past business dealings, asset ownership, bankruptcies, investor disputes Pre-Employment: Usually limited to personal credit history (only for roles involving fiduciary duties)

📣 Reputation Risk

Pre-Investment: Media reviews, litigation searches, regulatory actions, political exposure, conflicts of interest Pre-Employment: May include online/social media screening but usually not as extensive

⚖️ Legal/Regulatory

Pre-Investment: Sanctions, criminal history, civil litigation, compliance violations Pre-Employment: Criminal record, licensing violations

🔗 Business Associations

Pre-Investment: Investigates networks, directorships, shell companies, cross-holdings Pre-Employment: Rarely considered outside of previous employment verifications

🌍 Jurisdictions Covered

Pre-Investment: Often national and possibly international Pre-Employment: Often local

As depicted above, both types of research might look into the same types of information, but the sources and depth of coverage vary greatly between the two. For example, legal research in the pre-investment context is looking for both past civil and criminal issues as well as ongoing civil issues that might tie up resources post-investment or give indication of the subject’s behavioral patterns. In the pre-employment context, employers are generally concerned with past and current criminal records as a sign of trustworthiness or reputation. Generally, pre-employment reports may not be concerned with civil litigation such as breaches of contract, but may be concerned with disciplinary actions by licensing boards or claims indicating fraud, etc.

Risks Identified

🛠️ Strategic/Operational

Pre-Investment: Conflicts of interest, history of fraud, poor governance Pre-Employment: Resume fraud, workplace misconduct, criminal record

🌐 Reputational

Pre-Investment: Exposure in negative press, unethical behavior impacting investors or portfolio performance Pre-Employment: Damage to workplace morale, employer brand, or compliance efforts 

⚖️ Regulatory/Legal

Pre-Investment: Violations of regulatory statutes, export controls, AML laws, or other investment related compliance structures Pre-Employment: Non-compliance with employment laws, hiring claims, or failure to follow corporate bylaws 

The types of risk that pre-employment and pre-investment research consider are also similar; however, the preventable outcomes are what matters. For example, both assess reputational risk. Investors are typically concerned with negative press or unethical behavior that could damage their reputation by association, while employers focus on how a candidate’s reputation might affect the workplace environment. Tailoring reports to look for the necessary risks also means that pre-investment and pre-employment due diligence often differ in methodology.

Methodology 

🔎 Investigative Depth

Pre-Investment: High – involve third-party investigative firms, open-source intelligence (OSINT), and discreet human source inquiries Pre-Employment: Moderate – usually limited to verification services, automated checks, and criminal history databases

✍🏽 Consent Requirement

Pre-Investment: Often performed under client confidentiality with less direct interaction; consent may be obtained via investor agreements Pre-Employment: Must comply with labor laws (e.g., FCRA in the U.S.), requiring candidate consent and rights to dispute findings. 

⚙️ Customization

Pre-Investment: Can be tailored to investment type, geography, and perceived risks Pre-Employment: Usually standardized given role and company policy

Pre-investment due diligence generally takes more time and resources to complete given the nature of the information sought. This usually includes searching open source databases, as well as premium subscription databases, to gather all the necessary data points that go into creating a finished product. This is in the form of a report that provides summaries of key issues and important context into the background of each subject. Pre-employment searches are generally more moderate in scope and methodology, often relying on databases that provide less contextual information, mainly serving as a checklist for information found. This means that pre-investment reports are generally narrative, customizable, and may take longer to digest. In contrast, pre-employment reports by nature are easy to digest, quick to read, and are generally not customizable due to the limited scope of information and the speed of delivery.

How Intelligo can Help

Intelligo provides an all-in-one due diligence platform with automated and analyst-enhanced reports tailored for both pre-investment and pre-employment use cases. Powered by an AI-driven research engine that searches a wide range of open-source and premium data sets, Intelligo delivers fast, comprehensive and compliant due diligence reports for any use case. Want to see Intelligo in action? Schedule a demo to connect with our team.