How to do founder reference checks

Reference checks are powerful tools for evaluating founders' credibility, competence, network, and integrity—all predictive signals of their startup success. They can also be useful for catching major red flags.

Referencing founders can unlock buried treasure. But, surprisingly little has been written about how to reference checks (well) in an investment context.

Reference checking is an art, not a science. Every investor has their own way of conducting them, and very few have articulated their process.

This edition of Signature Block attempts to fill this gap. We cover the importance of reference checks, how to run a good reference check process, and to-dos and to-nots. As always, we've co-published this guide with venture funds that contributed their input directly.

If you only have a few minutes, here are the key takeaways:

• First, do reference checks. While understanding the market opportunity, business model, and technological innovation is essential, the character and capabilities of the founder leading the startup are equally, if not more, critical. When done well, references provide insights into a founder's past track record and future potential. It takes additional effort but can provide valuable intel to shape a portfolio.
• Dive under the surface. References are a "forcing function" to run a deeper diligence process. When diving into a founder's experiences, investors highlighted the importance of going beyond professional highlights and digging deeper into a founder's temperament, working style, and motivations. This informs the investment decision but is also valuable when supporting founders post-investment.
• Don't just focus on the founder; focus on who surrounds them. The social graph around a founder can serve as a predictive signal of their potential for success. The networks' quality, diversity, and strength indicate the founder's ability to build relationships, learn from others, and pull in resources.
• Embrace subjectivity. Every reference carries its own set of biases. Pay close attention to "who" is referring someone, "how" they're saying things, and the relationship dynamics between the referrer and referee (e.g., it's not uncommon for founders to make bad employees). References should be "properly contextualized" with a deep understanding of the context in which they are given.

Shoutout to Alex Iskold (2048 Ventures), Oliver Kicks (Concept Ventures), Roy Bahat (Bloomberg Beta), Vijen Patel & Alex Kirshenbaum (81 Collection), Terrence Rohan (Otherwise Fund), and Vishal Maini (Mythos Ventures) for contributing to this post.

Are founder reference checks important?

Tl;dr: yes.

All investors who contributed to this post stressed the importance of referencing founders in the diligence process. References provide insights into the founders' past track record and future potential that might not be apparent in pitches. They also provide a more comprehensive view of their character, abilities, and track record. While personal takeaways and subjective impressions about founders are valuable (and hard to avoid having!), references help ground these impressions in others' experiences.

For some investors, founder reference checks are not an additional step in the diligence process, but a cornerstone of the due diligence process.

"We do thorough reference checks on every founder and never invest without doing them.”

— Alex Iskold (2048 Ventures)

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"At 81 Collection, founder reference checks are a cornerstone of our due diligence process, serving as a vital component in our pre-investment assessment. We typically do 10 back-references before investing."

— Alex Kirshenbaum (81 Collection)

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We always run founder references, but maybe not for the same reasons other funds do. As references are so subjective, we aren't only looking to hear how the team are superstars - we want to understand more about how and why they are so great."

— Oliver Kicks (Concept Ventures)

Some investors prioritize insights gained from references over their impressions. Personal biases can sometimes lead to misjudgments.

"When we have the right references, we treat founder references as more important than our own opinions about founders – and we try to do them before even meeting the founders."

— Roy Bahat (Bloomberg Beta)

Pros

We asked investors for input on the most significant advantages of running reference checks. In summary, reference checks provide:

• Insight into the founder’s character, capabilities, and track record
• A map of the founder’s social graph
• Can help with post-investment support
  

Here are some of their replies with our added commentary.

Insight into the founder’s character, capabilities, and track record

The intrinsic qualities of founders, such as leadership abilities, ethical standards, and ability to navigate challenges, play a critical role in the success of startups. Referencing surfaces insights from individuals with firsthand, ideally long-term, experience working with the founders.

"We lean on references as another lens for getting to know the people in front of us."

— Oliver Kicks (Concept Ventures)

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"These reference calls delve into the founder's strengths and weaknesses, providing nuanced perspectives on their leadership style, decision-making abilities, and overall integrity."

— Alex Kirshenbaum (81 Collection)

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Vishal Maini from Mythos Ventures also sees reference checks as an early warning system for founder integrity issues. They can reveal concerns that aren't apparent in orchestrated settings like pitch presentations or one-off meetings. Integrity is revealed through consistent behavior over time, not just in one-off incidents or when it is convenient.

"I look for a margin of safety on integrity, best demonstrated through repeated games over long time horizons. It turns out that skeletons in closets don't usually show up in pitch decks."

— Vishal Maini (Mythos Ventures)

A map of the founder’s social graph

Reference checks give investors a view of the founders' social graph, including the professional and personal relationships surrounding them. This is an important signal in itself. This is most obvious with repeat founders or well-respected operators, who have access to resources, advice, and support critical for startup success.

A founder's background, including their cultural and educational influences, also plays a significant role in how they navigate building a startup. They feed into the founders' mental models, values, and decision-making processes. Lastly, a pitch is an expression of a founder's perspective today. Understanding their core influences can give you a better view of how that perspective was shaped and how it might evolve.

Vishal @ Mythos Ventures cautions against relying solely on the information presented in pitch decks or initial meetings with the founders.

"References are a forcing function for understanding the social graph around a particular founder, not just the founder themselves. This is a powerful signal in its own right: if you can get to know someone the founder operated alongside and from what cultures and schools of thought they developed their mental models, you learn a lot about them that you could never learn directly."

— Vishal Maini (Mythos Ventures)

Can help with post-investment support

Properly conducted reference checks offer a 360-degree view of a founder's professional demeanor and personal traits. Once you understand how a founder operates, you are better equipped to support them post-investment.

"References, if done correctly, are a pure glance into a person's temperament, working style, motivations, hiring processes, habits, and broader personality - all things we can leverage post-investment to ensure we can work smoothly with each team and help augment their weaknesses."

— Oliver Kicks (Concept Ventures)

Cons

We asked investors for input on the most significant disadvantages of running reference checks. In summary, reference checks:

• Can be noisy and lacking in predictiveness
• Carries reputational risk

Here are some of their replies and our takeaways to go along with it.

Can be noisy and lacking in predictiveness

Every reference comes with its own set of context-driven biases, and failing to recognize that might lead to false inferences. This might require distinguishing between personal conflict and professional capability. While past performance provides valuable context, it is not the sole determinant of a founder's future success (and should be perceived as such).

"Conventional references can often result in 'negative' data which is not predictive of their potential performance as a founder.

Here are some examples:

- You reference a founder with a former employee and those answers weren't great. Well, many founders don't love their corporate jobs and are hustling on the side.
- Or, you reference a founder with a former investor. Well, it turns out that investment wasn't great for them, and they are (unfairly) bearish on them generally (there are a number of reasons why startups fail, other than the founder).
- Or, you reference a founder with a former co-founder. Well, it turns out that ~50% of startups have a founder breakup, and many founders don't love each other but are highly capable in their own right."

— Terrence Rohan (Otherwise Fund)

Carries reputational risk

There's an implicit understanding (often referred to as a "gentleman's agreement") that unless major issues ("red flags") are discovered during the referencing process, the investment deal is likely to proceed to closure after the due diligence phase. Reference checks can be a source of anxiety for founders as they're largely asymmetrical, favoring VCs who hold more power in the process. The referencing process can feel "tricky" for all parties for balance.

Investors who frequently withdraw from deals during the referencing stage face significant reputational risk. This could erode trust with founders and negatively impact their reputation. They are also susceptible to the "winner's curse"— the idea that winning the deal might mean they overvalued the company or missed something their competitors saw.

"The conventional "gentleman's agreement" in this period of formal diligence is that, barring some revelation about the founder's character or a previously overlooked problem with the market, a deal will consummate. The diligence process is designed to act as a safety valve for VCs. Unfortunately, it's also when thoughts of the "winner's curse" may take hold in an investor's mind.

It's a fragile period. Even worse for founders, it's a largely asymmetrical process. VCs can acquire a bad reputation if they repeatedly lead on entrepreneurs, only to drop them during diligence."

— David Frankel (Founder Collective), Source

How to run a good founder referencing process

We asked investors for their input on how to run a good founder referencing process. Here are their replies and our takeaways to go along with it.

Step 1: Identify high-quality references

The quality of the reference is as important as the information they provide.

The first step in the referencing process involves identifying a set of references. These don't necessarily have to be provided by the founder. Investors can also seek "off-list" references, leveraging their networks to gather information about the founder. This approach can lead to a broader range of insights than "on-list" references, enabling a more holistic evaluation.

References could also include customers and/or strategic partners to get a comprehensive view of the founders' execution. This helps investors assess the business's product-market fit, operational efficiency, and the founder's ability to maintain beneficial relationships.

Investors prefer references who have directly worked with the founder. This ensures that the feedback is based on firsthand experiences rather than second-hand information, providing a clearer picture of the founder's abilities and work ethic.

"We ask each founder for 2-3 professional references and connect with them either via email or a phone call."

— Alex Iskold (2048 Ventures)

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"Initially, we leverage our extensive investor and founder network to glean insights into both the personal and professional experiences of the founder. This preliminary stage allows us to gain valuable context, whether understanding the founder's passions outside work or evaluating their performance in previous roles.

We formally request references from the founder, typically seeking input from three individuals who have directly interacted with them. But the magic comes from the back-references when there isn’t a show."

— Alex Kirshenbaum (81 Collection)

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"To do references, we reach out to mutuals we trust (ideally other successful founders or people who know what a great founder feels like as opposed to just some general professional contact)."

— Roy Bahat (Bloomberg Beta)

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"I also like to conduct calls with customers and any channel / strategic partners (as applicable and often also provided by founders) to get a better sense of both the business and the founder."

— Anonymized investor (large multi-stage fund)

Step 2: Prepare a set of structured questions

The next step involves preparing a set of questions to ask the references. Several investors who contributed have a standard (and highly specific) set of questions, including comparative rankings (e.g., top 1%, 5%, 10%, or 25%) and "Would you invest in this person?" scenarios, providing structure, consistency, and objectivity into the referencing process. Including at least one open-ended question inviting the reference to share anything else not covered encourages disclosing additional, potentially crucial information.

"You want to make sure you are assessing founders relatively and objectively compared to other founders."

We have a standard set of questions we ask, including ranking the founder as top 1%, 5%, 10%, or 25% of people the reference knows in similar capacity. We also ask if the reference would personally invest $25K into the startup."

— Alex Iskold (2048 Ventures)

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As an example, here's a list of potential questions:

"Question 1: The Softball: "How do you know the person?" Starts the conversation and sets the context by asking how the reference knows the founder.

Question 2: A little harder question: "What is the founder's superpower?" To understand the traits that differentiate the founder.

Question 3: Allegedly hard question. "What's the founder's weakness?" To gain unfiltered insights into the founder's areas for improvement and to test the reference's credibility.

Question 4: The question. It depends. This one digs into a specific concern about the founder that investors want corroborated. 

Question 5: The necessary question: "Are there any ethical or behavior issues to be aware of?" Checks for any ethical or behavioral red flags.

Question 6: Columbo Special: "Anything else I should have asked?" To prompt the reference to share any additional insights not previously covered."

— Ted Wang (Cowboy Ventures), Source

Step 3: Contact references and conduct the reference

The final step involves conducting the references.

In terms of their preferred channel for references, investors had divergent opinions. Some contributors prefer email as a quick and casual way of contacting references. Others, such as USV's Fred Wilson, prefer calls because people hesitate to put negative things in writing. We've written about best practices to conduct the references in the reference checks to-dos and don't-do's section below.

"We're trying to determine whether the person is an outlier quickly – and if there's anything we should be worried about. So a one-line email with the right question can frequently get the job done."

— Roy Bahat (Bloomberg Beta)

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"Quick, informal messages are often less scripted and stiff than a scheduled phone call and allow for ongoing dialogue rather than a single conversation."

— Vishal Main (Mythos Ventures)

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"I have also learned to call people instead of sending emails. Most people don't want to put negative things in writing, but will do so on the phone, particularly with someone they trust."

— Fred Wilson (Union Square Ventures), Source

(Optional) Step 4: Conduct a formal background check

Background checks can provide an extra layer of protection for investors, providing additional information beyond personal assessments. They can identify potential red flags in a founder's or key hire's past, such as criminal activities or financial irresponsibility.

Some contributors we spoke to also conduct background checks as part of their standard procedure. Others do it ad hoc based on trust level and/or ticket size.

"Before finalizing any investment decision, we enlist a provider to conduct a background check, adding layer of validation to our assessment."

— Alex Kirshenbaum (81 Collection)

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"Depending on the nature of the relationship (e.g., new vs. existing) and the size of the investment, I leverage a third-party vendor to run a high-level background report that includes a criminal / litigation search along with an open-source internet search (social media, Glassdoor, general internet presence, etc.)."

— Anonymized investor (large multi-stage fund)

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"This is the simplest, lowest-cost way for a VC to eliminate risk. We've seen situations where senior hires defrauded their companies. Often, these harmful situations could be avoided by running simple criminal background/credit checks. 

Think about it. You wouldn't want a convicted embezzler running finance for your startup. Someone with a history of defaulting on loans isn't the kind of character you want shaping your team's culture. And it's definitely not the type of person we want to back."

— David Frankel (Founder Collective), Source

Reference checks to-dos and don't-do's

Across our conversations with contributors, several to-do and don't-do patterns emerged.

To-dos

In summary, here are to-do’s to run a good founder reference check process:

• Listen "actively" to read between the lines
• Stress test your assumptions
• "Bake in" positivity bias
• Determine if the founder is an outlier
• Embrace awkward silences
• Be mindful of the person's time
• Come prepared, but go with the flow
• Contextualize the "what" with the "who" (is saying it)
• Be transparent about your process
• Ask founders to reference you

Listen "actively" to read between the lines

How something is said—tone, hesitation, enthusiasm, or reluctance—can reveal more than the words used. Non-verbal cues can indicate confidence, reservations, or unspoken concerns that might not be directly addressed through words.

Keep an eye out for long pauses, rephrased statements, and trepidation. The truth often lies in those subtle nuances.

" The thing I have learned in 30-plus years of making reference calls is to pay attention to how things are said more than what is said. And pay particular attention to what is not said."

— Fred Wilson (Union Square Ventures), Source

Stress test your assumptions

Conversations with references are an opportunity to directly address uncertainties or stress test assumptions underlying your investment logic. Ask questions that help fill in the blanks.

"When referencing, I like to focus on areas of uncertainty in the investment logic. What needs to be true about the founder for them to build the business they're trying to build? Can their references help us figure out whether they are outliers on those dimensions, or how to best help them shore up weaknesses?"

— Vishal Maini (Mythos Ventures)

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"Use later-stage references to cross-test your assumptions and the learnings from earlier calls - you want to be sure your findings are a line and not a dot."

— Oliver Kicks (Concept Ventures)

"Bake in" positivity bias

Most people are programmed with a "positivity bias," which makes them generally inclined to say good things or avoid saying negative things, especially in professional contexts. It's important to counteract this when receiving references. Some investors emphasized that anything less than an intensely positive endorsement, a "hell yes," should be seen as a red flag.

"If we're sending a quick email, we might just ask the reference, "Is this founder a star? If you were us, would you invest in them?" Any answer other than "holy cow yes" is fairly damning because of the bias most people have toward positivity."

— Roy Bahat (Bloomberg Beta)

Determine if the founder is an outlier

The goal is to determine if the founder stands out in areas relevant to their business's success. References can provide insights into whether the founder has exceptional strengths or relevant experiences that make them particularly suited to making this business succeed.

"We want to press until we understand just how highly the reference respects the founder, and eventually they'll say something like "well, maybe not one of the best founders ever" at which point we can ask why – and then the conversation gets richer."

— Roy Bahat (Bloomberg Beta)

Embrace awkward silences

It's tempting to bombard the reference with questions. But making room for awkward silences and letting answers unfold organically is far more productive. The moment a call starts feeling interrogative or too rushed, you risk the reference detaching themselves or putting their guard up.

Don't talk too much: Remember that your goal is to get information. After my preliminary burst introduction, I try to only ask questions. A learning from my lawyering days is not to be afraid of silence. It's uncomfortable, but it gives the reference space to talk more.

— Ted Wang (Cowboy Ventures), Source

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"I'd say lean into and embrace awkwardness. The less you ask and the more you let the dead air do its thing, the more likely they are to share a story, anecdote, or example about the person to fill the silence - painting a richer tapestry."

— Oliver Kicks (Concept Ventures)

Be mindful of the person's time

For efficient reference calls, schedule no more than 20 minutes. Begin with an energetic (but concise) introduction to respect both parties' time and indicate the call's importance.

"In any reference call, it's important to be mindful about the person's time. Schedule the call for 20 minutes, both because the task shouldn't require a full 30 minutes and it's a way to put the person on notice that the call will be efficient. The calls tend to take only 15 minutes but build in an additional 5 for the inevitable delay in getting connected.

I try to start the call with a brief but energetic introduction explaining who I am and why I'm calling. The reference is sharing her time with me, and an enthusiastic and quick beginning sets the tone that I'm going to be efficient. We only do reference calls on 10% of the companies we meet, so I let the reference know we already think highly of the person about whom I'm calling. I do this to lessen the negative signal if we decide not to invest."

— Ted Wang (Cowboy Ventures), Source

Come prepared, but go with the flow

While it's good to come prepared for reference calls, too much structure can be a bad thing. Allowing referencing calls to take their own course can lead to unexpected but valuable insights. Ted Wang advices following unexpected stories that emerge during conversations. Stories especially can be profound sources of insight into instances where the founder faced challenges, made tough decisions, or demonstrated leadership. Go with the flow.

Some investors preferred a natural, conversational approach over a checklist to build rapport with the reference. Creating space for unscripted digressions leads to deeper conversations.

"Sometimes things take an unexpected turn. If there's a useful story that will give you true insight into a founder, go down that path."

— Ted Wang (Cowboy Ventures), Source

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"I am not a fan of referencing checklist questions. I have been on the other end of calls where the person is reading from a list of questions. That strikes me as an odd way to do a reference check. I think a conversation where you can dig into the meat of the issue in a natural way works a lot better. At least it does for me."

— Fred Wilson (Union Square Ventures), Source

Contextualize the "what" with the "who" (is saying it)

Some investors see traditional reference checks as broken. Trying to evaluate a founder based on a bunch of subjective perceptions can be misleading. Worse, they can lead to a false negative assessment of the founder.

Terrence Rohan suggested an alternative: focus on the "who" and not on the "what." In his methodology, the quality of the introducer, the quality of the founding team, and the network that surrounds them far outweigh the input of traditional references.

"The environment in which the founder previously operated and the incentives/biases of the person giving the reference must be taken into consideration. If not, you risk receiving a false negative.

Instead of over-indexing classic referencing, I tend to pay closer attention to the following:

- The quality of the person who introduces you
- The quality of the network that surrounds the founder (both professionally and personally).
- The quality of the team they recruited or can recruit
- The impression they make while pitching (this is such an important part of their job)

I find these more objective measures of the subjective qualities of a person." 

— Terrence Rohan (Otherwise Fund)

Be transparent about your process

Reference checks can be a source of anxiety for the founders being referenced and the referees providing the references. Demystifying the process for all parties by being upfront about your rationale, scope, and other specifics can ease concerns. As an example, Bloomberg Beta makes its reference check questions public in the spirit of transparency.

"If we're going deeper because we need to understand the answer in more depth, and in conversation with the reference, we're public on our website about the questions we ask – in our aspiration to be the most transparent investor."

— Roy Bahat (Bloomberg Beta)

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"It's best to be straightforward with founders: reference checks are a standard process and should not cause much concern. I think it's best to communicate that they are not meant to dig into or scrutinize one's personal life or history, but they are necessary to avoid complications or surprises, and investors are subject to LP scrutiny, so all bases must be covered, so to speak. Being upfront about the rationale for conducting reference checks and the process by which they are conducted can ease founders' concerns."

— Anonymized investor (large multi-stage fund)

Ask founders to reference you

This can balance out the power dynamic inherent in reference checks, which usually gives VCs more power over founders.

"We want founders to know that we value references so highly that we want them to do their references on us, too – after all, founders are our potential customers, and they're interviewing us to consider "hiring" us as their supplier of capital."

— Roy Bahat (Bloomberg Beta)

Don’t-dos

In summary, here are don’t-do’s to run a good founder reference check process:

• Don't skip reference checks
• Don't skip off-list references
• Don't ask "low-signal" questions
• Weight "newer" references lighter than "older" references
• Don't dismiss founders with disagreeable traits
• Don't treat the unavailability of references as a negative signal

Don't skip reference checks

This is self-explanatory.

"The number one best practice for reference checks is to actually do them. Skipping that step is a mistake, as often it may be very telling. Occasionally we hear a straight-up bad reference, or someone doesn't know the founder very well and this is very telling."

— Alex Iskold (2048 Ventures)

Don't skip off-list references

Seeking off-list references involves a lot of legwork, but they're much more likely to lead to a higher-signal, less-scripted, and more holistic referencing process. References suggested by the founder are unlikely to say negative things about them. Some investors like Fred Wilson focus exclusively on them.

"When we decide to dig in, we tell founders we will be reaching into our own networks to find out more about them. We expect the founder's handpicked references to be relatively positive, but founders should expect venture folks to call someone from their last places of employment."

— Ted Wang (Cowboy Ventures), Source

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"I am not a fan of calling the references on someone's list unless I know those people well. What I do instead is figure out who I know well that knows the person or knows someone who does. And then I reach out and call them. It's more work, but it yields much better results."

— Fred Wilson (Union Square Ventures), Source

Don't ask "low-signal" questions

Several contributors advised against leading questions or questions that prompt generic answers.

"Without stating the obvious, don't ask closed or leading questions."

— Oliver Kicks (Concept Ventures)

Weight "newer" references lighter than "older" references

"We focus on speaking with references who we already know well enough to "score" their view (some people are more critical of everyone, some love everyone). We'll search for mutuals on LinkedIn with the founder, across our whole team – and I actually now accept LinkedIn connection requests based on whether I know the person well enough to ask them for a reference. A reference who we're meeting for the first time lacks much, if any, value. And we reach out to as many of those trusted references as we can find, checking with the founder if we think it will be sensitive if we're asking around."

— Roy Bahat (Bloomberg Beta)

Don't dismiss founders with disagreeable traits

Weaknesses in one context can be strengths in another.

"Understand what you are asking about: We are not actually expecting to get uniformly positive feedback. Many great founders have a disagreeable streak. If we get a reference that says, "she's super smart, but she is just really stubborn" that's actually a good thing. It's our job to make the judgment as to whether the person will be a good founder."

— Ted Wang (Cowboy Ventures), Source

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"Often negatives in one situation can be positives in another. If someone says to me, "they were great when the company was small but got lost as the company scaled" that means that person is great at the very early stages of a company's development. And that is often the most valuable time in a company's life. Finding people who can operate in that environment is not easy. So I like hearing that about people. I know where to orient them."

— Fred Wilson (Union Square Ventures), Source

Don't treat the unavailability of references as a negative signal

"Sometimes, we have no good references to ask. That unavailability of references – which can be especially common for underrepresented founders – isn't a bad signal, just an absent signal. So we move to other ways of assessing the startup."

— Roy Bahat (Bloomberg Beta)

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Until next time, 
‍Ryan and Vedika from Weekend Fund. Special thanks to Yash Bagal for writing this piece with us.