[heynk]

Is there any kind of diligence for seed investments? I know there is the obvious YC application process, with an interview or two. After that, are there background checks? References? Anything like that? I know there isn't much to do diligence on with companies that are often just an idea.

[apsec112]

Just one experience, but the CEO of a startup I used to work for faked his college degree and had previously been sued by the FTC. (We found out only after he blew up the company.) None of the investors we talked to noticed anything.

[tptacek]

The kind of diligence we're talking about here wouldn't catch that. We're talking about the nuts-and-bolts business documentation required for an investor to take a stake in your company, not founder background checks.

[jacquesm]

A proper due diligence will definitely include founder background checks, as well as background checks for other key personnel or executives. For a seed round or small investment (<$2M or so) such things are usually not done.

[tptacek]

Clients routinely background checked us at Matasano; I know because every time it happened, I had to sign a release to allow it to happen (as did any other team member who was checked).

When a public company acquired us, in a process very similar to this one that also involved a 6-figure legal review bill, I did not sign a background check release, or even a credit check.

I would be surprised to learn that A round investors routinely do stricter checking than a public company doing a full acquisition.

[jacquesm]

> When a public company acquired us, in a process very similar to this one that also involved a 6-figure legal review bill, I did not sign a background check release, or even a credit check.

> I would be surprised to learn that A round investors routinely do stricter checking than a public company doing a full acquisition.

That's easily explained: when doing an acquisition the company is the focus, not the executives. When doing an investment the team that you are effectively partnering with is a very important part of the deal.

Post acquisition a player with a troublesome past that was not disclosed could be easily discarded especially since this would be considered a lack of disclosure, but in an investment scenario where that player (and/or their buddies) holds the majority of the stock that is not so easy.

[tptacek]

Is this something new? I haven't managed or been a direct party to a funding round, but I've been a founder during one A round and key staff at another and never signed background checks for those. What kind of investor was this that required background checks?

A public company that acquires a company managed by a felon might have to restate financials or write down part of an acquisition's value, which leaves me wondering about the supposed disparity.

[mbesto]

Not really - full details on my take here: https://medium.com/startup-grind/technology-due-diligence-or...

[siegel]

If it's a formal equity seed round, there is very likely to be diligence. The requests are often not that different than the Series A list in original post. But, generally speaking, a seed stage company has significantly less documentation to provide. So, most of the categories of diligence items end up being inapplicable.

In a note/SAFE round, it is much less likely that there will be diligence.

[matte_black]

There are little to no diligence checks for seed investments. There are plenty of people who have straight up lied about their history to get seed funding.