Dear SaaStr: What Kind of Background Checks Do VCs Do on Entrepreneurs They Fund?
It varies. Everyone does some background checks, or least they did outside of the Boom Times of late 2020 through late 2021. And some do very in-depth ones with lots of “off sheet” references (i.e., ones not provided by the CEO).
Many do few references checks beyond the CEO, but not all.
The most important thing is address any issues up front.
Due Diligence for most VCs is meant to be confirmatory. Just to confirm things are expected. Usually, by that point they’ve either decided they likely want to do the deal, or in many cases on background checks, may have even already given you a term sheet on the assumption the checks work out before the deal closes.
Finding material issues late in the potential investment process is a big flag. Finding a few folks that aren’t superfans? It’s sort of expected that a driven founder may have broken some glass along the way. 1 rough reference isn’t going to stop a deal.
So disclose whatever issues there are early. Maybe not in the first meeting. But probably at least before the third.
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