What are questions that an entrepreneur should be asking investors? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
“We’re ready to give you a term sheet,” Gill said to me. This was our fifth meeting, and everything had moved almost effortlessly towards this moment.
“That’s great,” I said, smiling. “Would you mind introducing me to a couple of portfolio company CEOs?”
“Of course,” Gill replied. “That will be fine.”
Doing reference checks on your investors is always a good idea.
Gill’s reputation was impeccable, but I still wanted to speak with a couple CEOs that had worked with him. Of all the things you want to know about an investor, knowing how they will support you is the most important.
I wanted to ask them what was Gill like when the inevitable problems occurred. Would he cut and run, or would he support the company?
Two days later, Gill made introductions to two CEOs he had worked with. They both said that Gill was very supportive.
“You’re lucky to have him as one of your investors,” one of the CEOs said. And, it turned out to be true. We had some serious issues to contend with, and Gill’s support never wavered.
There are other great questions to directly or indirectly ask investors. Here’s my list.
A. Back Door References
Yes, you should absolutely ask potential investors if you can talk with a couple portfolio companies. However, you should do your own homework and try and speak to portfolio company CEOs, preferably someone that’s failed, about their experience working with your potential investor.
It’s hard to find ex-CEOs, but it’s well worth the effort.
B. What’s Your Vision for The Company?
Investor/company alignment, or lack thereof, can make or break your company. For example, I’m working with a CEO that was considering taking money from a very well-known Silicon Valley VC.
“Martin” asked the investor about his vision for the company, and the investor said, “I really want you to focus on (market B). You can build a billion-dollar company if you focus there.”
The problem is that Martin’s expertise is in market A. Just as importantly, Martin believes (and I do too) that market A is the better market.
Martin passed on working with the investor. It was a smart decision because he almost certainly would have failed.
C. What Are Your Concerns?
This is a great question to ask, one way or another, when you’re pitching investors. Every investor has concerns about your company, so why not address them head on.
Addressing the concerns head on gives you the ability to control the narrative and keep the momentum going. If you don’t ask this critical question, then investors will come to their own conclusions.
Another way to address investors’ concerns is to add a “Why will our company fail” slide to your pitch deck.
D. Can You Help with Introductions to Customers?
I don’t know if I’d ask this question to VCs, but this is a great question to ask angel investors. Many angels want to be actively involved in your company, so understanding how they can help you is good for you to know.
E. Can You Help with Recruiting?
Another great question to ask angels. You want to tap into the network of your investors. One of the key areas I’ve seen angels help with is introducing you to key talent, especially in sales.
F. Do You Want a Board Seat?
As you move from friends and family investors, to angel investors, to venture capitalists, you’re going to find that many investors want to have representation on your board of directors. I wouldn’t give a board seat to your friends and family investors, but most VCs and many angels may demand a board seat.
So, why not just ask your potential investors what they want? Then, you know where they stand, and then you can determine what you want to do.
G. How Often Do You Want to Meet?
Inexperienced investors, especially inexperienced angel investors, may want to meet with you too often. For example, one of “Gary’s” angel investors want to meet with Gary every week to review progress on sales.
That’s way too much. Gary had to lay down the law and adjust their meetings to a more reasonable cadence.
Remember, You’re Being Courted When You’re Raising Money. Investors Are On Their Best Behavior
You’re about to embark on a seven to ten-year journey with your potential investors. In many ways, your relationships with your investors is just like a marriage.
I don’t know about you, but my wife and I certainly talked a lot about what our married life would be like before we got married. Don’t you think you need to ask your potential investors a lot of questions before you take their money?