This is a live learning session on what questions you should ask a potential venture capital investor.
As we grow at Speak Ai, we’ve started to connect with and even get approached by venture capital firms. A lot of this has been spurred along by a few articles, some excitement around the potential of our technology and platform, some relationship building, and the amazing support of the DMZ. At the DMZ, they even have designated firms come in. If they think a conversation is worthwhile and valuable for your company, they will let you know and you can easily book a time!
Because of that, we’ve had the amazing opportunity to connect with people at 500 Startups, Panache Ventures, Ripple Ventures, the Integrity Fund and more. During this time, I, and our team have learned so much. It’s been extremely clarifying.
As we start to get into more serious conversations, a lot of things emerge. There is a plethora of responsibilities in terms of due diligence and having things prepared financially and legally. That’s definitely not the favourite part of my work.
Even more than that though, questions about ourselves start to emerge. Is this the path we want to take? Is venture capital the best option in the short term and long term? I’ve been doing a lot more work on decision making lately and part of it has been accelerated by these conversations.
There is a lot of skepticism in a way. I’ve never been a Capitalist in the strict sense. I do want to make money, and large amounts of it, but mostly so I can hire people and continue to innovate with an amazing team. I’ve worked with nonprofits and social enterprises for a long time so the attention of venture capitalists is quite surprising, humbling, and thought-provoking.
I question motivations for money. For a long time, I held a pretty negative view of it actually. But, as I grew, and ran sixfive.co, I started to see the need for it to accomplish what you want in this crazy world we live in. So, I’m considering opportunities.
That being said, I don’t want to take money from anyone. I want them to understand what we are doing. I want alignment. I want more than money: I want relationships, networks, guidance, legal and financial support, help to find product-market fit and to get new customers. Money is not enough.
There are lots of articles and work to be done to answer questions that VCs have for you. But, I don’t see as much on what we should be asking investors. So, I’m compiling that hear in a live learning session.
- That venture capital people are scary and mean 😂. Honestly, every person I’ve had to the privilege to interact with so far has been kind, interesting, helpful, curious, and driven. Maybe I am morphing into something that at one point I didn’t like, but I’ve really enjoyed these conversations.
- Everything will be really professional. We’ve had some great, casual conversations with potential investors. I’ve enjoyed that a lot. It’s changed my perspective on investors and how relationships are built.
- You need to close right away. I’ve heard stories of people pitching for years before an investment is made. Voiceflow is one great example of that. They pivoted, rebranded, learned, iterated, and pitched multiple times before landing significant investments. Since then, they’ve been extremely successful as a company and in fundraising including support from the Amazon Alexa Fund.
First Google Search:
I started with “questions to ask vcs saas software” but I got crappy results. I rephrased the search to:
This produced some decent looking results:
Don’t be Afraid to Ask the VC Tough Questions | OpenView
The Most Important Question to Ask Potential Investors After Your Pitch — Dreamit Ventures
20 Questions Entrepreneurs Should Ask Investors
10 Questions You Should Ask Potential Investors – IronOak Energy Capital
11 Questions Founders should ask potential Investors (Part 1/2) – Capmatcher.com
10 Questions to Ask Investors (Before You Take Their Money) | Inc.com
First Look Interesting Questions From Articles:
Where are you in your fund’s lifecycle?
This is interesting because it determines the priority of the investor. I will come back to this later because I have some notes on it from a previous presentation by Luke at the Valhalla Angel Group. This was an awesome talk and cleared up so much for me.
Is there any area where you think you/your firm adds unique or disproportionate value?
Interesting choice of “disproportionate”. That really makes someone think. For example, 500 Startups or Y Combinator may say their network. Because of it, companies are oversubcribed. You’re only a stone throws away from someone who can change your life.
What price is it OK to sell at? (source)
Oooh, I like it. Will come back to.
When and if will you write us another, second check if we need one? (source)
Most firms reserve the right to invest in later rounds. It is good to know. Lots of nuances here worthwhile exploring.
What if we fail?
Damn, no one wants to ask this but so important. I’m used to taking loans and self-funding. I’m not as sure of what happens when you take on investment and fail.
What Percentage of Your Term Sheets Turn into Checks?
How Often Should We Expect to Meet After Funding?
How Often Do You Lead Rounds?
Who Else Would Be Interested in Funding This?
What could we improve on the pitch?
What’s Your Timeline?
Who Would You Put on Our Board?
What Has Made the Biggest Difference Among Your Successful Investments?
What is Your Top Concern?
As Forbes says, get this out of the way. Ask openly and honestly. Be coachable. React to what they say and come back stronger.
What Will We Least Like about Your Due Diligence Process?
Due diligence sounds horrible. We’ve started down that path in preparation. Let me tell you, it’s a lot. Here’s a list of documents provided by the National Angel Capital Organization for investment. But, it makes complete sense. And, I want to get this done well. It improves our value, credibility, and ability to be successful. I’ll keep you updated on any breakthroughs and insights as we go through this process.
How Long Does it Typically Take You to Close?
Could you introduce me to an entrepreneur of your portfolio that failed?
What is the size of your current fund?
Why are you interested in investing in my company?
How large is a potential investment?
Do you have a specific industry or geographic focus for your investments?
What metrics are you tracking when considering an investment?
What are your standard terms?
Will you be personally involved with my company?
My Own Questions & Thoughts After Reading
I want and do have confidence in what we are doing. We need to have that mindset when we go into meetings. Especially for funds like Y Combinator and 500 Startups where they have set terms, you could be taking a low valuation. Is it worth it? How much are you worth? Is this necessary? It is worth it?
There are some great sources on the Dreamit article that link to other articles. Here they are:
5 (Less Obvious) Questions to Ask VCs | The Capital Network
The 4 Questions Every Founder Should Ask Every VC. That Almost No One Asks. | SaaStr
Some firms like TechStars and Y Combinator have amazing resources that are worthwhile checking out. I will do no justice here I am just learning along the way and hoping not to make mistakes that jeopardize the company, but more than that, the vision for my life and the world I’ve worked on for so many years.