Warren Buffet says, "Hire people based on Passion,Intelligence and Integrity." People's passion is visible in the first meeting, and intelligence comes out in a couple of hours in a discussion, but discovering that person's integrity takes more time and effort.
How do you make decisions regrading the integrity of a person in an a fledgling company so that the bad hire doesn't cost your company time, money and--in the worst case scenario--joining your competitor indirectly?
Integrity is a trait tested by social interaction, so the best way aside from psych tests to measure this is to talk to the people the person worked for/with in the past. Ask for recommendation letters and references as part of the interview process.
Also, establishing a contractual probation period of two-three months for any employee helps you determine whether that candidate is a good fit.
Try calling their references and seeing what they have to say - and be sure to ask if they left on good terms. You can tell a lot about the integrity of a person by the way they leave a company - did they slack for months, insult people, burn bridges, etc. or did they continue their responsibilities until the end, help with transition and maintain positive relationships with their old co-workers? If there were issues in the past, the same could happen to you.
Of course, if something does come up, give your potential hire the opportunity to defend themselves.
You could use a testing service to do a psychometric test - there's an integrity test called Giotto that provides a seven scale profile of a candidate's level of personal integrity in work situations. Testing can be administered online by getfeedback and I believe the price per run is 20 pounds.
Agree with all of the above suggestions, check references, talk to the potential hire's previous companies and co-workers if possible, etc...
In this time and age you might also want to check social media sites... you'll be surprised how much information you can find about a person and also find some clues about a person's integrity in these sites by looking at his/her answers on forums like this, Twitter, Facebook, LinkedIn, etc...