Capital Conversations — Episode 13

Introduction to Due Diligence

Hosts: Karen Rands & Erik Nelson

In this solo episode of Capital Conversations, Erik Nelson introduces the fundamentals of due diligence and explains why experienced investors spend as much time evaluating management, financials, and business operations as they do evaluating the opportunity itself. Using FINRA Regulatory Notice 10-22 as the framework, Erik walks through the key elements professional investors review before deciding whether to invest—and the red flags that can help investors avoid costly mistakes.

The discussion explores why due diligence is far more than reading a business plan. Investors need to verify management experience, review financial statements, understand market opportunities, analyze competition, and investigate a company’s operating history. Erik also shares real-world examples of businesses that failed because investors skipped basic research, along with practical techniques anyone can use, from simple internet searches to reviewing SEC filings.

Whether you’re evaluating a startup, considering a private placement, or simply trying to become a more informed investor, this episode provides an introduction to the due diligence process and explains why the best investment decisions often come from knowing when not to invest.

Episode Summary

In this episode of Capital Conversations, Erik Nelson introduces the core principles of due diligence and explains how professional investors evaluate investment opportunities before committing capital.

Using FINRA Regulatory Notice 10-22 as a guide, Erik discusses management evaluations, background investigations, financial statement analysis, market research, competitive analysis, and common warning signs that investors should never ignore. He also explains why due diligence is designed to reduce risk, improve decision-making, and protect investor capital throughout the investment process.

In This Episode, You’ll Learn

• What due diligence is and why it matters
• Why FINRA Regulatory Notice 10-22 remains an important framework
• How professional investors evaluate management teams
• Why leadership often determines investment success
• What background investigations should include
• How SEC filings can reveal valuable information
• Why internet research is an overlooked due diligence tool
• What financial statements reveal about a company
• The importance of audited financial statements
• How business operations impact investment potential
• Why market size and competition matter
• How industry research supports investment decisions
• Common red flags investors should recognize
• Why the best investment may be the one you walk away from

Timestamps

Hosts

Karen Rands

Website: https://karenrands.co/
LinkedIn: https://www.linkedin.com/in/karenrands/
Facebook: https://www.facebook.com/TheKarenRands/
Instagram: https://www.instagram.com/compassionatecapitalist/
TikTok: https://www.tiktok.com/@compassionatecapi?_t=8q14kyaqCHO&_r=1

Erik Nelson

LinkedIn: https://www.linkedin.com/in/eriksnelson/
Coral Capital: https://coralcapital.com/
Sterling Investments: https://sterlinginvestments.com/
Mountain Share Transfer: https://mountainsharetransfer.com/

Newsletter

Capital Conversations Newsletter (LinkedIn):
https://www.linkedin.com/newsletters/capital-conversations-7297707966219120640/

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