Investors will have several questions about your startup before they fork over any money for your venture. But it is also crucial that you know as much as possible about the venture firm and the individual venture capitalist or angel investor before making any deal. You are vetting them just as much as they are you.
Here are seven questions to ask potential investors.
1. What is your fund’s status?
Founders need to know just how well-financed the fund is.
“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,” Inc. reported.
Marketable securities that are highly liquid and considered cash-like are often referred to as dry powder.
2. What have been your most successful investments?
Of course, you want to be on a winning team with a solid track record, so this a must-ask question.
“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,” Inc. reported.
3. What is your average 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,” Forbes reported.
4. Are you open to leading financing rounds?
The reason you want to know this is because the lead investor “plays the largest role in setting the pricing and terms for the round,” Inc. says. And, you will need a lead investor for every stage of funding.
5. What are your standard terms?
Before signing on the dotted line, have your lawyer check out the investment agreement terms. This may seem obvious, but deal terms can be more important than valuation, depending on the case, notes Inc.
6) After funding, how often are we expected to meet?
The key to a good relationship with your investor is understanding how they like to work. Do they expect you to meet with them often, or do they prefer to take a hands-off approach?
As Forbes describes it, “You do want a good amount of interaction. Raising money is far more about the added value you can get with these people on your team and with a vested interest in your success than the funding itself.”
At the same time, you don’t want to be overwhelmed with meetings.
7. Can I expect you to be personally involved with my company?
Sometimes a VC firm elects to take a board seat. You’ll need to know if this will be the case.