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Just as VCs conduct due diligence on potential investments, founders should also perform due diligence on potential investors.
A VC’s primary role is to increase a company’s likelihood of success. They can do this in various ways, and identifying how effectively an investor can support a startup should be the core of a founder’s due diligence. If I were in a founder’s position, I would screen VCs based on the following criteria.
Beyond just providing capital, can the investor offer additional value?
I believe the answer is yes. Based on conversations with founders, here are some of the most frequently cited ways VCs can genuinely help:
Securing backing from a "top-tier" VC often enhances a company’s brand, at least in the short term. This directly aids in talent recruitment. While the halo effect may be less pronounced when hiring the first 10 employees, it becomes crucial at the Series A stage and beyond. Since early hires significantly shape a company’s trajectory and culture, founders should ideally attract talent from their own networks first.
A strong VC brand means the firm or partner is well-known, respected, and seen as a factor in a project’s success. Success, after all, is the best brand builder.
Does the investor have relevant experience that can offer actionable advice? Are they particularly skilled at identifying market or business trends?
This includes two key aspects:
Experience – The VC may have accumulated insights from successful portfolio companies (or their own founder experiences).
Market Awareness – They should provide clarity on broader market dynamics and how these might impact the company in the next 6–12 months.
A VC can sometimes help founders (or functional leaders) connect with the right people—whether experienced executives or potential clients. While founders still need to close deals themselves, investors can at least open doors that might otherwise remain shut.
Some VCs have built-in audiences, making "thought leadership" part of their value proposition. Today, many VCs leverage podcasts, newsletters, and X (Twitter) to amplify startups. Occasionally, these channels can effectively boost visibility and traction.
First, congratulations! Having multiple competitive term sheets is both an achievement and a privilege. Take a moment to enjoy it.
You likely already have an instinct about which investors you’d prefer to work with. Due diligence often reveals nuances—like the types of questions they ask, the insights they share, their responsiveness, and cultural fit.
Now it’s time to validate that instinct. Here’s the process I’d follow (in no particular order):
Research both successful and failed companies in the VC’s portfolio.
Understand how the investor behaves in success and under pressure.
Ideally, speak to founders who have worked with the same partner you’re considering.
Does the VC have a history of investing in competing companies?
More importantly, do they currently back any firms that could theoretically compete with yours?
You’re choosing both a firm and an individual partner. Founders should ask:
What are the partner’s long-term goals?
If this partner left tomorrow, would you still want to work with the firm?
Does the VC consistently invest in companies at your stage?
A $1B fund writing a $5M seed check (0.5% of its capital) may deprioritize you versus a firm specializing in early-stage bets.
In an era of fewer IPOs, it’s critical to align on:
Views on acquisitions or secondary sales.
For crypto projects, their stance on token sales (which impacts token design and launch strategy).
Choosing a VC is often a one-way door. While the right investor won’t guarantee success, they can tilt the odds in your favor—and make the founder’s journey smoother. Spending a few extra days on due diligence can pay off massively in the long run.
