How do investors verify a startup's claims? Less glamorously than you'd think. Mostly we ask for the source and see if it matches the slide.
At 45 I didn't know what a Series A was, let alone investor relations. Then I read Venture Capital for Dummies twice and ran investor relations for a $20m one. Now I've got an investor profile on Capital HQ, and I'm still asking the questions.
What investors actually check
The pitch makes claims. Diligence tests them. At the early stage that usually means:
- References: people who've worked with you, including some you didn't put forward.
- Customer calls: a few of your customers, asked what they pay and why they stay.
- Bank statements: the cash in the deck should be the cash in the account.
- The cap table: who owns what, matched against the share issues and agreements.
- Metrics: revenue, churn and growth, checked against the systems they come from, not the spreadsheet built for the raise.
Later rounds go deeper. Y Combinator's Series A diligence checklist runs from board minutes to share issues to every contract over $25,000. It notes that closing an A can take more than a month, "much of which is often spent tracking down documents for lawyers."
Why the checking matters
Most founders aren't lying. But numbers drift. A definition changes, a spreadsheet gets tidied, a churned customer stays in the count.
Sometimes it's worse. Frank's founder told JPMorgan the startup had 4.25 million users. According to the sentencing release, it had about 300,000. When the bank tried to verify, a fabricated data set went to a third-party vendor, which confirmed it had over 4.25 million rows. JPMorgan paid $175 million. The founder got 85 months in prison.
The check counted rows in a copy. It never touched the source. For investors, that's the lesson: go to where the numbers live. For founders, it's the flip side: a copy is exactly what makes honest numbers look shaky.
Why a live record holds up
The easiest claim to verify is one that was never rebuilt. If your numbers come from where they live, and your decisions and customer evidence were written down as they happened, checking is quick. The references match the record. The bank matches the deck.
Ethiks360 is built so that record already exists when the checking starts. You hand over what happened, not a version made for the raise.
Pick the one number in your deck you'd least like checked, and trace it back to its source this week.
82/18: machines did the boring bit. The thinking's mine.