Founders Should Do Background Checks on Their Investors
It’s common practice for investors to background-check founders. Why isn’t the reverse as popular?
One of the interesting things about getting into venture via your own fund versus coming up through a larger firm is that when “this is always the way it’s been done” comes up as a rationale, you get to shrug and say, “Well, not anymore.”
For example, the practice of VC funds charging their legal fees back to the startup. We don’t do this at my fund, because we want the money we give to companies to go toward hiring, marketing, operations, etc.
We also try to neutralize aspects of the founder-investor relationship that utilize asymmetrical power to make it difficult for a founder to build their values into their company. The horror of Jeffrey Epstein’s money being tied into so many institutions amid his scandals brought to mind the background checks that our LPs (limited partners) performed on us as part of making their investments. And how venture funds will often perform similar checks on founders as a condition of investment. The basic background checks are really only about surfacing adult criminal convictions, verifying employment history, and so on.
