Asking these questions to prospective investors can save you time and increase the quality of your investor group. Investors will have many questions about your business and want to hear your narrative.
However, Lisa Juan José Gutiérrez Mayorga points out that it is also critical that you understand the venture business and the individual venture capitalist or angel investor that is contemplating investing in your company. The procedure includes pre-screening and building a target list of suitable investors, but you will also need to ask particular questions while selecting your investment group.
The order in which you ask questions is critical. You want to gauge prospective investors’ interest in making an investment before bombarding them with inquiries about themselves and their finances. Here are some questions you should strive to address before accepting money from an investor.
Questions for investors
1. How is your fund doing right now?
You want to know if the fund has enough cash on hand, or “dry powder,” to make the kind of investments you need for your business. You should also be aware of the VC’s capacity for future follow-on investments.
2. Do your investments focus on a particular sector or region?
I want to know if this venture fund invests in businesses like yours. A related concern is the specific VC’s area of expertise. Do they have anything else that your business could use?
3. What are your best investments so far?
This is a related discussion on the specific VC’s experience and domain knowledge. What do they take most pride in? What part did they play in the achievement? Other CEOs who have collaborated with this VC can be found in this method, and their perspectives on the contribution the VC made to the big success can be obtained.
4. What measures do you monitor while evaluating investments?
Capital raising for a business is a procedure, not an occurrence. An institutional investment round normally takes six months to complete, and investors will follow your development all along the way. It might be incredibly beneficial in this process to know what precise qualities they are looking for in an investment.
5. How many investments do you make annually, and what is the average size of your assets?
It is crucial to understand how much money this specific VC can put into the round. You generally need someone who makes investments in the $1 million or above area if you’re searching for a lead investor or someone to co-lead a $5 million round.
6. Do you direct funding rounds?
It’s crucial to identify the lead investors for your fundraising before you can close a funding deal. The lead investor has the most influence over the round’s pricing and terms. While you shouldn’t disregard VCs that don’t lead, you shouldn’t make them your top focus either until you have your lead investor.
7. Do you usually have co-investors?
VCs frequently desire to share leadership of investment rounds. They frequently enjoy working with a small group of additional VCs from other companies. Knowing who else you should be contacting and trying to influence during the fund raising process gives you a road map.
8. What is your accepted terminology?
Deal terms are frequently at least as critical as appraisal, if not more so. Work with a capable outside attorney who has knowledge of seeking private money to comprehend the typical deal parameters in the market today. Do the potential investors match this mold, or do they anticipate unusual terms that would be detrimental to management and the company’s founders?
9. Do you accept board positions?
You must be able to cooperate with a VC if they decide to assume one or more board seats. Do they have contacts or domain knowledge that you and your business may use? Not every investor that leads an investment round sits on the board. In one of my firms, the Series C round lead did not accept a board seat, but he maintained a good friendship and frequently co-invested with the Series A round lead who did.
10. Are you personally interested in my business?
Make sure you are aware of who will be on your board if a VC company intends to take a board seat. Who adds the most value to you and your business—the senior partner or the junior associate? Make every effort to seat the most qualified individuals at the table.
