You have narrowed down the list of potential investors that you think may be a good fit with you, now it is time to meet them. Here is some guidance on what to ask them at each stage of meeting them.
Hold on, before you meet with them did you carry out a quick check to make sure you fit their investment thesis? This includes asking them (if the answers are not readily available):
- What sectors do they invest in?
- What round sizes and stages do they invest in?
- How many investments have they made in the last year?
When preparing for your first meeting, these are some questions to bear in mind:
- How large is the fund and how much of their fund do they reserve for follow-ons?
- Do they lead or follow?
- What is their view on this space?
If that meeting goes well, in follow-on meetings you may want to find out:
- How do they work with portfolio companies? (Board seat, monthly calls, etc.)
- Who would be on the board and how many board seats/observers do they expect?
- What kind of return or exit valuation do they expect for from your investment? How do they decide whether to take an exit offer?
- Where does their money come from and who are their LPs?
You may also want to consider the following questions, but these are probably best aimed at a partner level:
- How do they support portfolio companies?
- How do they decide which companies to follow on with? Are there examples where they have not followed on?
- Do they do bridge rounds? (Be careful as you do not want it to sound like you are expecting to need a bridge round! Maybe specify that you intend to grow 3x every year, of course, but want an understanding of the mentality they use for support!)
In between meetings with your potential investor, you may want to consider conducting some reference calls to current portfolio founders to get a feel for how it will be once you join their portfolio. Remember, do not just ask those doing amazingly well, you want an investor to be supportive during the tough times as well as the good. Here are some suggested questions you are your reference call:
- What is working with [prospective investor name] like?
- How often do you speak to them?
- [investor] has x board seats; do you ever feel they are not able to contribute to you because of it?
- What are some examples of things that they have done to add value? (This can include supporting the next round’s fundraising, making sure you had the right talent in place, etc.)
- What has been a difficult time (cutting cuts, a founder leaving, pivoting, not growing as planned, difficulty raising a round, etc.) and how did they react or support you?
- Did they follow on in your later rounds or support in any bridge rounds?
- What is one thing you have disagreed on?
- If something dramatic happens, who would you call first from your investors? And who would expect to be most helpful? How long before you call this investor in particular? (e.g., your largest client looks like they are going to churn, someone is trying to sue your company)
- Rate the investor on a scale of 1-10 (It sounds trivial, but it works! 6 or below is a problem; 8 and up is good!)
Finally, you may also want to ask for references from some co-investors. It may seem like an overkill right now, but you will be tied to your investor for years, so taking the time to choose wisely can make a massive difference:
- Have you invested with them? Do you rate them, and would you take money from them?
- Did they support the company?
- In areas of disagreement were they reasonable and constructive or difficult and uncommunicative?
Hopefully, the answers you gain from the different parties – investors, portfolio companies, co-investors – will give you a good enough indication of which investor should be your top choice.
For more details on preparing for a fundraise, check out our previous articles on how much to raise, when to raise, and what to look for in a potential investor.