36 Questions Every Startup Must Ask A VC

Raising funds is not an easy process, but finding the right investing partner to help you build your company is much more difficult. When it comes to fundraising, investors ask startups 100s questions not just during their pitch or till the funding is complete but even after they have invested the company. Investors are choosy about where they want to put in their money, but what about entrepreneurs? With rise of startup investments, there has been rise of number of investors and investment firms. Thus, an entrepreneur needs to be careful who they allow to invest in their startup.

Although this is not an exhaustive list of questions that you need to ask, but the basic considerations that should be kept in mind before you decide on a VC to invest in your business.

So, here’s a list of questions you should keep in mind

About The Fund

Founders should be aware about the basic profile of the fund. It’s better to ask them about the current number of investments that have been made through the fund.

Also, what is the experience of the partners in terms of the sectors they have worked in is important. In case they are from the same sector as your business then you will have a better chance of gaining useful insights from them.

Apart from this it is essential to know what pension funds and other funds have invested in the VC’s fund? What is the value of total funds invested by the management? The number of investments that have been made till-date by the management. Another essential factor is to enquire if there are geographic limitations to the investments that are being done. Because, getting funding from a VC is a long-term venture.

After the due course of time your business might have expansion plans, and at that point of time you would not want to hinder it by these limitations.

About Investment Profile

It is essential to gain a perspective on how the management differentiates between the opportunities, what are the deals that they look at, and the number of deals they enter in a year to gain an insight on the patterns of the deals made by them. Also, does the firm make any minority investments? What is the level of flexibility of the firms with their investments. Do they have a head-on approach towards their investments?

About The Deal Flow

What is the average size of an investment made by the management? In case the investment is done in exchange of equity then what is the expected average size of investment? What is the minimum/max equity cheque? Is there a scope for a follow on investments? What is the leverage brought to the investments?
It’s better to have an insight on where the VC finds its deals and also if they work on cash multiples or IRRs.

About The Funding Process

Once you have finalised the investment you will be closely working with the management. As essential it is to find a compatible founder who shares the same vision as you, you need to be able to identify with the team from the VC you will be working with. It’s essential to know whom would you work with from the VC’s team and what is their relevant experience? It is also advisable to know if there are any investments done by the firm that conflict with your business. Also, what are the key attributes that help in the decision making process and for the evaluation of the deal. This would help you present a rock-solid proposal and will extract the maximum from their funds. It is important to know what will be the financial information that will be provided by the firm. And also, how will they value your company.

About The Structure

Before you hand over key information about your process to the firm it is important to know who are the key decision makers that make the decision about investments? What are the key tenets of shareholder agreements? Do the investors insist on a board seat? Do the investors have a problem with the appointment of a non-executive chairman? Does the company have a structure of investment? Do they invest in phases and if yes then how do they structure their investments?

About The Value Addition

Are there any value added services that the company brings to the table, if yes then what are these services? Can they find additional deals to help the growth of your business? What are the sectors the firm focuses on? How important is the deal to the company and why? It is also important to know what are the work-pattern post investment. Also, one should insist if they can speak to the founders of their existing investee companies to gather an idea if the actual work situations with the firm.

Although these questions may seem too forthright and a little uncomfortable too but one should definitely ask these questions to get a fair idea about the ideology and investment ideas of the investment firm.

Checkout this interesting infographic created by Printpapa, listing the 36 crisp questions you must ask your potential investors.