The sharing economy is not all sunshine and roses. When you stick strangers together, a huge array of crimes eventually ensue, as seen on applications like Airbnb and Uber. From alleged rapes, to hammer assaults, to kidnappings, to property destruction, the list goes on.
A new company, Checkr, has raised $9 million in a Series A led by Accel to deal with one part of that equation: Background checks. It services the on-demand and sharing economy industries, billing itself as a “Stripe” for background checks. It automates the process via software. Companies can stick an API in their apps, to make it easy to onboard new contract workers, whether drivers for a delivery service, cleaners for a cleaning company, hosts for an apartment sharing service, and so on.
When a person applies for a job, the API allows the company to run the background check automatically, returning a report almost immediately for some checks, and one to three days for others. It’s dealing with a sore spot in these emerging markets, which is the cost, hassle, and regulatory complications around vetting freelance workers.
Checkr fits Accel’s “API economy” investment thesis. “We’re looking for where this modern API can dramatically accelerate or expand categories that were previously semi-manual processes,” Accel partner Rich Wong told me. In the past, Accel has invested in such endeavors in data analytics, with Segment.io, and in deep linking and mobile search with URX.
Checkr is one of those infrastructure companies that emerged to meet the new needs of the on demand and sharing economy. It’s a risky play for an investor, because by investing in such an infrastructure it’s essentially a bet in an unproven industry. But Wong pointed out that a company like Checkr can help more than just tech startups. “There isn’t even a PayPal in the space yet in terms of someone building technology for this process,” Wong said.
Just because Checkr is automating the process to make it easier for companies, doesn’t mean it’s conducting a more thorough background check than the ones that already exist.
When Uber says “we background check drivers” you’d think that means something really official, perhaps vetted by the Department of Justice and accessing government crime databases, right? You’d be wrong. I learned way more about this issue then I cared to when writing about an Uber driver accused of assault whose criminal record and jail time went undetected by Uber’s vetting system. Background checks in the U.S. are a fragmented, broken system, with different records scattered across states and counties, much of which aren’t digitized. And there’s no fail-proof way to make sure you’ve searched them all.
The closest a background check can get to legitimate is the Live Scan system, which uses fingerprints and accesses government records. It’s the type of background check required for many sensitive job positions, like school teachers, medical personnel, and (in much of California) taxi drivers. But Live Scans are expensive — $100 a pop – and inconvenient for tech companies trying to scale quickly. If Uber had to send someone for a fingerprint every time it wanted to onboard a new driver, it probably wouldn’t have moved into as many new markets as quickly as it did.
The cheaper, faster option is to use applicant social security numbers to run checks through private companies like Hirease and Sterling, which access mishmashes of databases. They scan PACER for federal records, tap state DMVs for driving records, and employ runners to pick up physical records at county court houses where records aren’t digitized. There’s a lot of flaws with this system, but it’s a hell of a lot cheaper than Live Scan and it’s almost universally adopted by startups employing “background checked” contract workers.
That’s how Checkr operates too. It put together its own background check system, but it’s not Live Scan, and it’s bound to miss stuff. You can’t send runners to every county in the country, so companies have the choice with Checkr to search records in the current county a person lives in, the counties they’ve lived in for the last seven years, or no counties at all. If someone went on vacation to Portland in that time and committed a crime, it wouldn’t necessarily appear in the search.
“We definitely want to test and see if we can do something on Live Scan to make it more convenient,” co-founder Daniel Yanisse told me. “It’s a tradeoff of safety versus cost and convenience for these companies.”
Checkr is great news for startups in the new on-demand and marketplace industries, but it doesn’t change much for consumers. The sharing economy still comes with its share of risk.