One of the most common issues faced by founders raising capital is not knowing if a potential investor or venture capitalist (VC) is the right fit. The biggest reason for this is an inherent lack of information you have as a founder about a VC going into a conversation.
Luckily, a first call or meeting can act as a reconnaissance mission, allowing you to learn more about-- and vet -- a potential investor from the get-go with your own exploratory and qualifying questions. Setting aside time to ask your own questions is not optional. A potential investor is a possible partner, and you need to know what kind of person you are inviting onto your capitalization table.
1. What does your process look like?
It's a deceptively simple question to ask a VC, but it's an important one. What you're really asking is, what does your timeline look like from us, speaking to investment? This will of course vary depending on how much you're raising and the VC.
A key benefit from leading with this question is that it gives you an insight into how they operate, how long it could take to close, and how the market is right now. By asking this you'll also be able to gain some insight into their due diligence process and be able to extract what information they and other VCs in the space are looking for early on.
2. Who should I be CC'ing on your side?
This seemingly proactive question is really a Trojan Horse. You are ultimately getting the contacts of multiple people within the organization, along with getting an insight into who are key decision-makers. An added benefit is that it will also save time from having to re-explain or speak about things that you've already covered with your point of contact.
Simultaneously, you'll get the chance to impress other members of the firm. Do not undervalue impressing someone for free in the VC space. Maybe a deal doesn't happen with the investor you're speaking with, but VCs talk to each other and this could lead to a warm intro.
3. Leading versus co-investing?
This question isn't going to be as direct. One way you can ask it is:
"We have a few investors who have expressed interest in leading. So assuming we brought a solid lead to the table that you really liked, and the terms were good, then what might be a rough range of ticket size you might be interested in? I won't hold you to it."
This is a trick question. Many VCs only like to lead, and this question might spur them to let you know early if this is the case. It's also a great segue into who they like to invest with, potentially giving you some softball referrals into senior leadership with other VCs.
Assuming you do have an offer from a different potential lead investor who has given you a rough valuation, this is the time to bring up a ballpark range. Always use a ballpark range rather than give any exacts as if one VC is offering you a valuation of 13x revenue. By saying 10x-20x as a ballpark range to another, you might end up with a more favorable valuation at the end of the day.
4. What are some examples where you brought real value-adds to portfolio companies?
Outside of their timeline, this will help you determine the real value add of a VC. This will let you know if they can help any problems that you are facing right now.
But remember, past performance is not indicative of future results. Past behavior is an indication of future behavior. In other words, you should gauge how the VC helped accomplish their value add rather than the result of it.
5. What's the cadence that we'd be doing regular roundup calls?
Basically, how often are you and the VC going to be communicating post-investment? Also, will this be by phone, zoom, or email? This is also an open way of establishing that you will be following up. The key question is, how frequently?
At the end of the day, you'll also have to ask your own questions as well. After all, no one knows your business and what it needs better than you. But these five questions will start giving you the lay of the land right off the bat.