References you chose tell you more than references you were given

Checking the people behind an investment means verifying claims, speaking to sources they did not nominate, and asking questions specific enough that a vague answer is itself informative.

11 min read · Level 3

The point

I think most people diligence fails not because the questions are wrong but because the sources were chosen by the subject. One conversation with someone who was not on the list usually tells you more than three with people who were, and the way to reach them is simply to ask every reference who else was there.

What is it?

People diligence has three parts:

Part What it involves Verification confirming stated facts: roles, dates, qualifications, prior outcomes References speaking to people who worked with them Public checks searches for litigation, regulatory action, insolvency history where public

The distinction that matters most is between offered and chosen references. Anyone can nominate three people who will speak well of them. More useful references come from your own network: a former colleague, an investor in a prior company, a customer.

A simple way to find them is to ask each reference, at the end of the call, who else worked closely with the person during that period. This produces a chain of contacts the subject did not select.

Questions work better when they are specific and leave room for an honest answer:

Weak Stronger Are they good to work with? How did they handle the hardest month you worked together? Would you back them again? What would you want to be different next time? Any concerns? Where did their judgement turn out to be wrong?

Hesitation and vagueness are data. A reference who enthusiastically confirms facts but becomes general when asked about difficulties has usually told you something.

Why does an investor care?

Because in private investments, the people decide most of the outcome and are the hardest part to verify. Documents can be checked; judgement and character are learned from those who have seen them tested.

It also catches a small number of serious problems. Misrepresented roles, undisclosed prior failures and past litigation are rare but recoverable only before you invest.

Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.

Example

A founder's stated background checked properly.

Claim Check Result Led engineering at a named company two former colleagues from the period confirmed, described as capable Grew prior company to 5,000,000 revenue investor in the prior company revenue was closer to 2,000,000 Left to start this company chosen reference, not offered had been asked to leave after a dispute

None of these ended the conversation on its own. Together they showed a pattern of describing things more favourably than the record supported, and the investor raised each directly with the founder before deciding.

The common mistake

Relying only on references the subject provided, and asking questions general enough that a polite answer costs nothing.

How it works

Step 1: Verify the checkable facts first

Confirm roles, dates and outcomes through records and people who were there.

Step 2: Build a chain of chosen references

Ask each reference who else worked closely with the person, and call those people.

Step 3: Ask specific, difficult questions

Focus on hard periods, disagreements and judgements that turned out wrong.

Step 4: Record hesitation as evidence

Note where answers became vague, and check the same area with another source.

Step 5: Raise findings with the subject

Give them the chance to explain before you draw conclusions.

When to use this

Before any private investment where a small number of people will determine the outcome.

When not to use it

Do not treat a single negative reference as decisive. People have disputes and rivals; look for patterns across independent sources.

How investors actually did it

A recurring pattern: misrepresented backgrounds discovered late

Investigations and regulatory actions in cases of investment fraud have frequently documented that founders or managers misrepresented qualifications, prior roles or past results, and that these claims could have been verified through public records or former colleagues before investment.

Verify the checkable facts early. The cheapest diligence is confirming what someone has said about their own history.

Do this now

Write three specific reference questions about hard periods rather than general character
Identify one reference you could reach without the subject's help

Create a free account to read the rest and apply it to your own investing.

Related lessons

What you were told, what you inferred, and what you checked — Almost everything that later turns out to be wrong was never actually verified - it was assumed, because it arrived alongside things that were true. (10 min)
Red flags: the signals that mean slow down — A red flag is not a reason to stop. It is a reason to stop moving at the speed you were moving, and to go and find out which of two explanations is the true one. (11 min)
Team, market, product, business - and why the order matters — At the earliest stage there is little business to analyse, so evaluation leans on the team and the market. As a company matures, the evidence shifts toward product and business fundamentals. (10 min)