Which Representations in an Investment Agreement Should Be Independently Checked?
Short answer. Check material claims about the investment and sponsor independently. Verify asset details and financial claims, then review the sponsor's track record, alignment, and exit plans. Compare each statement with source records or a qualified third party, and note what remains unconfirmed. Focus on claims that affect valuation, projected returns, control, or your ability to recover capital.
Check agreement statements that affect investment value, ownership, risk, or expected outcome. Treat each material representation as a claim to test, not proof by itself.
Start With Claims Behind the Return
Identify statements that support the investment case: projected returns, conservative assumptions, recession resistance, a first-mover position, proprietary deal access, or a record of avoiding losses. Ask what evidence would support the claim and what could disprove it. Separate historical facts from estimates and opinions.
For performance claims, request deal-level support. Establish whether results are realized or projected, gross or net, and whether the record includes all relevant investments and losses. Compare the agreement with supporting records and investor reporting. See how to check a fund's reported track record for a closer look at that work.
Check Asset Ownership and Financial Statements
Confirm that the entity named in the agreement owns the described asset or investment. Depending on the structure, request ownership records or account statements. You can also request contracts or confirmation from an administrator or custodian. For a private company, compare the stated capitalization and security rights with the capitalization table and governing records.
Test claims about revenue and expenses against source records. Check debt and reserves, along with available cash. A summary may omit timing differences or obligations. Ask for reconciliations when reported figures do not tie to bank activity, tax filings, audited statements, or underlying contracts. For an asset valuation, request its supporting materials and learn who prepared it, its scope, and the assumptions used.
Examine Sponsor and Alignment Statements
Check claims about the sponsor's investment and fees. Review conflicts and responsibilities too. Ask for written confirmation of the sponsor's amount and terms, then compare them with fund or company records. Review disclosures of affiliated vendors, referral payments, or related-party transactions. Confirm who controls cash, approves payments, and determines asset values when those responsibilities matter to the claim.
Check statements about key personnel, including who will perform the work and what relevant experience they bring. For claimed licenses or registrations, consult the appropriate regulator's records, such as SEC IAPD and Form ADV, FINRA BrokerCheck, or NFA BASIC. A name match needs context. Absence from a database does not establish the full facts.
Test the Exit and Record Confidence
An intended sale or refinancing does not guarantee liquidity. Check the assumed buyer universe and the basis for expected timing. Ask whether another path exists if the preferred route is unavailable. Find market evidence for the proposed exit and consider what could make it difficult.
Maintain a claims log with the exact wording, evidence reviewed, source, and a confidence assessment with a short reason. Mark unsupported items as unconfirmed. Ask your attorney to assess contractual wording and remedies. Your accountant can review financial claims when appropriate. If evidence conflicts, use a documented process for unresolved disclosure differences.
Checklist
- List material representations in the agreement and offering papers.
- Separate historical facts from forecasts and opinions.
- Request source records for performance, ownership, or finances, and for sponsor claims.
- Confirm important facts through independent records or third parties.
- Record what is supported, unconfirmed, or inconsistent.
- Pause on claims that affect the decision and remain unsupported.
Go deeper: How can a family office tell whether returns came from skill or market conditions?; What records should support a manager's claimed investment results?.
With any type of contract, it is essential to have your own qualified legal counsel review the matter overall and the contract at hand.
Sources: Family Office Club investor due diligence framework, The Single Family Office. Informational only, not financial, legal or tax advice.