Checkr nabs $40m to expand its background screening platform beyond the Valley

Back in October, we reported that Checkr — a San Francisco startup that runs employee background checks and vets potential hires by way of an API — was raising north of $30 million as it expanded its business beyond the 300,000 checks per month it already does for some 3,000 tech companies including Uber and Instacart. Today, Checkr is formally announcing that round: it has raised a Series B of $40 million with a valuation that TechCrunch understands is between $250 million and $300 million.

As we reported before, the round is being led by the Y Combinator Continuity Fund, an investment vehicle that has raised $700 million, mainly to back YC startups as they continue to scale. Other investors participating include Institutional Venture Partners and Accel, as well as David Spector and Elad Gil, two early investors in the company. Checkr has raised some $50 million since being founded in 2014.

Daniel Yanisse, Checkr’s French CEO and co-founder, tells us that Checkr — which is already profitable from existing operations — will be using the money to continue building out its products, forging new partnerships, and going after new markets outside of the tech world. That requires not just a bigger sales team, but also technology to make its checking software more intelligent and integrate better with the legacy systems that many of these older companies use to manage their HR.

“Targeting enterprises and more traditional businesses take a lot of effort,” he told TechCrunch in an interview. “It’s not always straightforward to break out of Silicon Valley.”

Checkr has already started on that route, with new clients coming from the world of call centers and large staffing companies, he said.

Checkr, which today operates in the U.S. and Canada only, competes against more established screening companies like SterlingBackCheck, HireRight, and First Advantage, as well as smaller startups like Goodhire (or potentially Onfido in the UK, if the two ever enter each other’s markets).

As with these, Checkr’s focus is on background checks that typically cover driving and criminal records and basic identity confirmation.

There are a couple of keys to why Checkr is doing well and attracting funding.

The first is the product itself. The rise of on-demand startups relying on large, quickly-scaling workforces, as well as other startups that are simply growing very fast, has led to a demand for services that can provide basic screening for potential employees. (This was, in fact, a problem that Yanisse and co-founder Jonathan Perichon saw first-hand working at a previous startup, same-day delivery service deliv.)

Checkr essentially offers a quicker, cheaper and more simplified way to vet a potential worker, covering data like social security number validation, address history, national and county criminal records and driving history. A business can run checks through Checkr’s online form; or, by way of an API, it can integrate a Checkr check into its hiring systems and other onboarding software such as Workable and Zenefits.

Right now, there is a lot of technology that goes into Checkr’s checks, but even so Yanisse tells me that there is still a big dose of old-school human labor that goes into tracking down and supplying this information, so some of the funding will be used to work on making that process more efficient.

The second reason Checkr is doing well is because, well, it’s making money — which is not always the case in Startup Land. Usage is priced per person, per report in tiers of $25, $35 and a tailored price based on specific requirements that may include deeper checks on motor vehicles, international searches and drug screening.

The fact that there is no ‘freemium’ to this model means that Checkr essentially starts to get paid the moment its services are enlisted. The funding today is for growth, not operations: Yanisse tells me that Checkr is already profitable.

Of course, nothing is perfect in the world of human resources. Fast-scaling startups like Uber and Zenefits — both Checkr customers — have been in the spotlight for some of their own staffing challenges (layoffs, dodgy work culture, and claims of violent drivers among them).

Today, Checkr’s service does not really touch these areas, and it’s clear to admit that.

“Sometimes looking at the past can help but it’s not always the case,” Yanisse noted when I asked him about some of these problems. “Sometimes people are first offenders. It’s not a perfect solution; it’s a risk mitigation tool. We try to aim for the highest accuracy and compliance.”

This potentially poses an opportunity for how Checkr could improve its services, but also to consider exactly what we want to see in these kinds of checks, such as privacy protections. This is something that Yanisse is also very firm about. “Our mission is to help improve safety and get jobs and equity on the marketplace,” he said. The company, he added, is unlikely to start nabbing more data from, say, social media searches to enhance that. “That can be dangerous. We want to make sure we are offering ethical searches that help consumers.”

Checkr was the first funding that was made out of the continuity fund, but it’s not the first that got officially announced. That honor went to DoorDash, which yesterday announced a $127 million raise. Coincidentally, DoorDash was Checkr’s first customer.

Ali Rowghani, the ex-Twitter exec who now runs the Continuity Fund, said that Checkr was “well-respected in the YC network,” and its interest is not just because of Checkr’s own potential but the role it’s playing in the wider ecosystem for many other YC companies.

He also added that there are more investments to come. “We’re just getting started,” he said.