Symptoms:

BackupChain fails almost as soon as it starts when backing up SQL Server VM

SQL server VM Application log is riddled with errors

Diagnostics:

Use VSSDiag

You can start by using the VssDiag http://backupchain.com/VssDiag.html and enter the exact time when the error was reported by backup chain(within 5 minutes) on the SQL Server VM

This will list any VSS issues from the log

I saw an error like:

A VSS writer has rejected an event with error 0x800423f4, The writer experienced a non-transient error.  If the backup process is retried,
the error is likely to reoccur.
. Changes that the writer made to the writer components while handling the event will not be available to the requester.
Check the event log for related events from the application hosting the VSS writer.

Operation:
   PrepareForSnapshot Event

Context:
   Execution Context: Writer
   Writer Class Id: {a65faa63-5ea8-4ebc-9dbd-a0c4db26912a}
   Writer Name: SqlServerWriter
   Writer Instance Name: SQL Server 2008 R2:SQLWriter
   Writer Instance ID: {d78d914d-4a11-4350-8334-af08bff3ce07}
   Command Line: "C:\Program Files\Microsoft SQL Server\90\Shared\sqlwriter.exe"
   Process ID: 2408

Look in VM Application Event Log

I saw several entries for databases:

The log for database 'CMSi-TNC-demo' is not available. Check the event log for related error messages. Resolve any errors and restart the database.

If in Enterprise manager you run DBCC CHECKDB  for the database mentioned you may see a host of errors

Fix:

I found the fix was to take the database in question  offline and then put it back online again.

Running DBCC CHECKDB again then reported no errors

After I had worked through all the databases that had this error – BackupChain could then run a VM backup