Investor will have a number of questions about your startup and will want to know your story. But it is equally important that you understand the venture firm and the individual venture capitalist or angel investor who is considering an investment in your company. Pre-screening and developing a target list of qualified investors is part of the process, but you will also need to ask specific questions when selecting your investor group.
Timing of when you ask questions is important. With prospective investors, you want to gage their interest in making an investment prior to peppering them with lots of questions about themselves and their funds. Here's a lit of 10 questions you should try to answer prior to taking money from an investor.
1. What is the status of your fund?
You want to know if the fund has enough "dry powder", or money in their fund, to make investments of the size that you are seeking for your company. You also want to understand if this VC can make follow-on investments over time.
2. Do you have a specific industry or geographic focus for your investments?
This is a question about whether this venture fund invests in companies like yours. It is also a question about the domain expertise of the specific VC. Can they add value to your company besides money?
3. What are your most successful investments?
This is a follow-on about domain expertise and the experience of the specific VC. What are they most proud of? What was their contribution to the success? This is also a way to identify other CEOs that have worked with this VC and get their perspective about the contribution the VC made to the success story.
4. What metrics are you tracking when considering an investment?
Raising capital for a startup is a process, not an event. It typically takes six months to raise an institutional funding round and investors will be tracking your progress along the way. Knowing what specific things they are seeking in an investment can be really helpful in this process.
5. How many investments do you make per year, and what is your typical investment size?
It is important to know the amount that this particular VC can contribute to the round. If you are looking for a lead investor, or for someone to co-lead a $5 million round, then you probably need someone that makes investments in the $1 million or more range.
6. Do you lead financing rounds?
Finding the lead investor for your financing is essential for completing a funding round. The lead investor plays the largest role in setting the pricing and terms for the round. Do not ignore VCs that don't lead, but don't make them your highest priority until you have your lead investor.
7. Who do you typically co-invest with?
Frequently VCs will want to co-lead funding rounds. They commonly have a handful of other VCs from other firms that they like to work with. Having this information gives you a roadmap of who else you should be speaking with and influencing during the fund raising process.
8. What are your standard terms?
Deal terms are frequently just as important, and in some cases more important than valuation. Work with a competent outside counsel that has experience in raising private capital to understand the common deal terms in today's market. Does the target VC fit this norm, or do they expect non-standard terms that could be a disadvantage for management and the founders of the company.
9. Do you take board seats?
If a VC takes board a board seat, or two, then you need to know that you can work with him or her. Do they have domain expertise or connections that can be helpful to you and your company? Not all investors that lead an investment round take a board seat. On one of my companies, the lead of the Series C did not take a board seat, but he had a close relationship and frequently co-invested with the lead of our Series A investment round who did have a board seat.
10. Will you be personally involved with my company?
If a VC firm plans to take a board seat, make sure you know who will be on your board. Is it the senior partner who provides a lot of value to you and your company, or a junior associate? You want to make sure you have the best people around the table as possible.