Hedge funds and Venture Capital firms (V.C.s) invest in companies of all sizes and stages of the company’s life cycle. When evaluating potential investments, they must conduct thorough due diligence to uncover risks or red flags. An essential part of this due diligence process involves searching UCC (Uniform Commercial Code) and SoS (Secretary of State) databases. Here are some key reasons why UCC and SoS data are so valuable for hedge funds and V.C.s:
Monitoring Liens and Secured Debt
UCC filings reveal when a company has taken on secured debt or opened a line of credit using assets as collateral. This is crucial information for investors, as excessive liens and debt obligations can pose significant risks. UCC searches can uncover if a target company has already leveraged vital assets.
Tracking Corporate Ownership & Money streams
While SoS data contains all U.S. corporate filings from the 1700s, from the company’s inception, mergers, name changes, trade names, and much more. SoS data connects the dots between parent companies, subsidiaries, and affiliate entities. UCC records help investors follow their target investment’s money upstream and downstream. This paints a clearer picture of the entire corporate structure.
Due Diligence in Management
By searching SoS business registrations, investors can dig into the background of a company’s executives and board members. Have these individuals been involved in shareholder disputes, bankruptcies, or failed ventures? This type of reputation risk is uncovered in SoS filings.
Probing Potential Conflicts of Interest
SoS documents also reveal if company insiders have interests in competing firms or side businesses. This could indicate a misalignment of incentives or a conflict of interest requiring further investigation. UCCs also highlight connections between affiliated companies.
Tracking Litigation Risk
SoS records reveal if a company or its executives have been involved in lawsuits, tax liens, judgments, or other litigation issues. For pre-IPO companies, especially, VCS must be aware of any pending legal disputes or risks.
Validating Stated Revenues
By finding all corporate entity variations and DBAs, investors can look up associated tax I.D.s to get a clear picture of reported revenues. They can verify that claimed revenues match IRS filings from all business entities.
Conducting this level of public records due diligence is essential for hedge funds and V.C.s seeking to make intelligent investments and maximize returns. UCC and SoS searches should be a routine component of the evaluation process. By leveraging data aggregators like Accutrend Data Corporation, investors can access a complete UCC and SoS records database to uncover any red flags.
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