6 Questions Every Founder Should Ask Potential Investors
Building and scaling a start-up ranks near the top of the order of ‘hardest things to do in life. There’s no better way to increase your odds of success than getting some insights from those who have been down the road before. From our experiences building and working with startups and thinking about the nuances of our own business as investors, we’ve compiled a list of questions we think founders should ask investors when going through the fundraising process. Before you agree to partner with or accept funding from an investor, consider asking the following:
- Who will be my primary point of contact?
Partnering with a venture capital firm ties you to them for a long time. You may frequently have to communicate, meet up with, or depending on the unique situation, effectively receive marching orders from the firm. Get clarity early on who you will be working with at the firm on an on-going basis.
2. Who are your investors? What are their goals?
Ask your investors what their expectations are in the partnership. Do they want to be a silent partner? Or will they be closely involved in the management process? Or maybe all they care for is the end result, a “call me when you sell” scenario. But, if they have other expectations, it’s key to discuss these at the start to prevent any rising issues later on. There must be foundational alignment on your vision for and stewardship of the company. The remaining relationship details can be worked out with clear communication and due care.
3. What kind of investor are you — financial, strategic?
An investor’s ambition in investing in your company shapes their expectations, approach, long-term strategy, and time commitment. It will also generally impact their level of involvement and the extent to which they utilize their network on your Company’s behalf.
4. How much engagement do you want to have with us — “call us if there’s a major problem,” versus “let’s speak monthly”, versus “here are the areas we can help you with — let’s start helping”, etc.?
The right investor is not only a capital resource, but also a mentor, a counsel, and/or a teacher. When deciding on who to move forward with, you should consider what they can bring to your team and if their experiences align with your goals. You can even get a sense of this by speaking with other investors who may have experience working with your potential investor.
5. What functional areas does your VC firm bring expertise to: finance, marketing, sales, customer intelligence, tech, deep industry knowledge, etc. And what kind of access will we have to that expertise?
Maybe another way to put this question is what type of help do you need or think you will need in the upcoming future as you proceed to grow your Company from your current to your next expected fundraise. Depending on your needs, you should ideally have one or more investors who specialize in them. You should also make sure that they have experience working in the industry that your company is in. If so, they will likely have a large amount of translatable experience built over years of working with similar companies.
6. How will you judge our progress/KPIs that are most important to your assessment of whether we warrant continued financial support?
Their progress evaluation will give insight to their methods of work. You will be able to understand whether or not these methods align with your own. It’s a great tool of insight that you should definitely ask to take advantage of. Knowing this answer and ensuring you meet the expectations set at the outset, will have you much closer to receiving their additional financial support down the line.
Here are some additional thoughts to keep in mind when talking with an investor that we feel would also give you a better understanding of whether or not you would like to work with them in the future.
- What other companies have they invested in?
As a founder you should do diligence with other founders that the potential investor has invested with because the best way to get to know an investor is when they own a piece of the company. This is why we would encourage you to speak with at least 4–5 other founders/CEOs they’ve invested in or worked with.
- What exactly will they bring to the table?
While this is not necessarily a question you can directly ask the investor, you should really try to understand exactly what value or benefit this investor can bring to your team? Is it the money? Their contacts? Network? Or their ability to help with hiring critical people? Their experience?