I remember meeting up with a new founder who was stressed about the fundraising process. Fundraising can certainly feel stressful, but I realized that most of the issues could have been solved by asking the right questions. When you’re less confused about the process, it makes the process more predictable.
Here are some questions I found helpful to ask when meeting investors:
1. What kind of companies do you invest in?
If the investor focuses on biotech, it's unlikely she'll invest in your SaaS company. If you get a pass, you'll now know that it had nothing to do with you.
2. Who else have you invested in?
If she hasn't invested before, she may not be well suited to the ups and downs of startups. The stress may make them want to become extremely involved; instead of being helpful, the investor may be harmful. There are few things I avoid more than having the wrong people permanently involved in the company.
3. How much do you normally invest? Is there a range?
It helps you mentally map out your round. If everyone invests $10,000, it’ll take a long time to fill your $1m round. This also helps you determine if you are talking to enough investors.
If there is a range, you can always the take smaller amount if there is not enough room left in your round.
4. How does your decision process work?
If you understand the process, it’s less likely to feel like a jarring experience, since the investor will be doing what she said she would do. Even if she deviates, you will still know the general path.
Angel investors often decide on the spot or will want to sleep on it. For VCs, it depends on the firm. Seed investments can be fast and often close in one meeting. Larger rounds are slower and often involve multiple partners.
5. How much time do you spend with your portfolio companies?
It's helpful to know their expected involvement in advance, to see if an investor will be in the crowd, the ringside, or your corner.
You want to be careful of people who could distract you without adding value.
6. How many boards are you on? (for VCs)
This is important to know, because if the investor is currently sitting on a lot of boards, she may not be able to invest a lot of time in your company or may be unlikely to make an investment at all. It’s not necessarily a deal breaker, but just good to know.
7. Now that you know more about what we're doing, are there any other investors I should be talking to?
The investor might provide an intro or might not. Regardless, some great investors keep a low profile. Just knowing a name helps, since you can ask for an intro from someone else.
These questions reframe the conversation from trying to get someone to part with their money (hard and potentially bad for your company) to finding out whether there is a fit (less hard, more helpful and more long term). Plus, by getting to know each other, this sets you up for a longer term relationship. So, it always perplexes me when I hear founders not ask questions.
Let me know if I'm missing any.