Questions to ask investors

Can I ask investors questions?

Absolutely you should. This is a fact finding, value aligning exercise, to ensure there is a right fit for both parties and be prepared to walk away if it doesn’t stack up, feel right and their values are aligned with yours.

Saying this, you must consider the fact that they will know financials better than you, they won’t know your business, sector or company as well as you – as you live, breathe, sleep it – use their wisdom to help you level up.

In 2020, I had my first conversation with a VC, in Dubai. Crikey I was unprepared, the acronyms, the information they expected left me feeling like I wasn’t ready, yet I knew I was, the company was ready – my issue? The narrative. I didn’t portray the focus of the company in a way they would understand, I certainly didn’t speak the same language, in fact, I left that first meeting with a question “what did I learn, and what do I need to?” I could have skulked away from that encounter deflated or add them to a database of investors I admired, and keep them in a regular newsletter towards our progress.

I didn’t communicate very well in the early days, I thought, if I understand the vision, then anyone can. Give yourself more credit, they don’t, wont, and not need to. If you consider every VC is poised to say no, then you won’t be disappointed, my advice is to do your research on the investors you’re planning to meet, discover their portfolio, why they invested in them particularly, why not their competitors? If their portfolio if investments, has synergy, add them to a short list. If they don’t have an active fund, then don’t invest your time.

Be very specific in who you want to connect with and why. Don’t try to sell them the business idea. Present the benefits and show them why they should believe in you, your team and your vision. Personality and relationship building is crucial in the investment world. It will come down to numbers eventually and aligned with the exit strategy for the fund, however, with the right questioning and research you’ll understand what their fund mandate is and align yourself with that… or not.

Don’t send everything you’ve got as an investment deck, stagger it. Here’s how I structure my communication with investors:

1. Send a one page summary outlining your roadmap and successes.
2. Investment teaser 6-8 pages of topline facts and numbers.
3. Create an Investment Memorandum (IM)

The more meetings you have face-to-face the better (it build relationships), don’t email everything, they can easily get forgotten, misinterpreted, not followed up (which leaves you chasing). Remember, “Investing in your business isn’t as important to them as it is you”.

No investor really wants to say “No” they never want to be the one to claim, they walked away from the early investment opportunity in Uber, AirBnb, Tesla. 

I took my own advice, levelled up, remained in contact with the VC I met with back in 2020, and that VC has now become a close friend, ally and mentor.

Here are my top 10 questions to ask investors:

1. How do you understand my marketplace?
2. How do you see my company fitting in to your existing portfolio?
3. What excited you about my business? What concerns do you have?
4. What do you like about the company, and what don’t you love?
5. What weaknesses do you see in my business?
6. What milestones do we need to accomplish (after this) to get to the next round?
7. How do you personally like to work with founders?
8. What has been your greatest investment and why?
9. How do you help CEOs in your portfolio help each other?
10. What are the next steps, what is your appetite to invest in me?

FUNDRAISING QUESTIONS

You may get asked: “Are your existing investors participating in this round?”

• Our existing investors of course want to participate in this round. They will likely want to do their pro rata investments  –  some might even want slightly more.

• I know that new firms have ownership targets. I feel confident I can meet these. If it becomes sensitive between a new investor’s needs and previous investor’s –  I’m obviously not going to tell my investors they can’t participate, but I feel confident I can work with them to keep the sizes of their cheques reasonable.

What a VC hears when you say this:

• My existing investors are supportive. I will eventually call them anyway to confirm but I can continue my investment assuming they are supportive.

• In the future if we raise a larger round, this entrepreneur won’t try to screw me by forcing me not to take my pro rata rights because they weren’t throwing existing investors under the bus with me.

• This entrepreneur is sophisticated enough to know that fundraising is a dance in which I need to meet the needs of both new investors and of previous investors. They will work with me so I can get close to my ownership targets.

Any thoughts on the above? If you use some of these tips and would like to share please feel welcomed to do so.

Thank you for reading.

A.