Do startup investors care about how employees are treated where they invest?
The reality is VCs, for the most part, sort of care.
What I can tell you 100% for sure is once you have even a small team, VCs:
- Will all look at your Glassdoor ratings. This is so easy to research / see.
- Will all do due diligence at least on how CEO is perceived, internally and externally. After all, this is a big part of the bet. At a minimum, they’ll talk to prior-round investors for sure. And anyone in their extended network they know that used to work there.
- Do background checks on CEOs and generally all co-founders. This is pretty standard. But sometimes, not much deeper than looking for criminal acts, fines, etc.
- Are looking for inspirational leaders, especially in SaaS/B2B. After all, you are always selling as a CEO. To customers. To prospects. To partners. To other investors. Inspirational leaders simply sell better.
- There’s no appetite for harassment, etc. It’s not remotely OK, but 5+ years ago, some VCs would provide a partial pass here in some cases. It’s hard to imagine that happening today with any pattern of harassment, etc.
And when these checks turn up concerns, VCs do worry. Not too long ago, I literally was on a back-door reference call for a $250m+ valuation investment (not a company where I am an investor) where a late-stage VC did not invest just for this reason.
And early-stage VCs are always thinking about “Do I want to work with this CEO for the next 10+ years?” That’s how long it takes to get a return, and the early days often involve a lot of time working directly with a CEO. Few seed-stage VCs I know will invest in a CEO they don’t personally want to work with. (Later stage investing becomes more purely transactional).
But … and yet …
Having said that … even if the feedback is pretty mixed, if the metrics are strong, in the end, almost all VCs will still invest if they personally still believe in the CEO. Jobs and Gates were jerks earlier in their careers (and maybe Jobs always was). There are many troubling aspects to Elon Musk’s behavior. Mark Zuckerberg is not leading from the front today, not at all, and that is disappointing and hurtful. Jeff Bezos sure seems rough around the edges, and at least externally, often insensitive to many concerns.
And yet … these are the companies worth a trillion dollars, or approaching it. So most VCs still want to invest in the next Jobs/Gates/Musk/Zuck.
So most VCs will do these deals. At least, this is what I’ve seen.
This might be wrong. It might not be OK in many cases. It is important to dig in further with flags and issues. The practical fact is that many CEOs break some glass on the way to building a unicorn. Even the best of CEOs expect more from many employees than those employees can give. And many first-time managers are really rough around the edges. But (of course) there’s zero excuse for harming anyone in any fashion at all, for sexism, for harassment, etc.
So, yes. VCs do fund CEOs that shouldn’t be funded. Toxic CEOs find it harder to get funded today than 5+ years ago. But many founders will get a pass when they shouldn’t.
(note: an updated SaaStr Classic answer)