What should I ask a VC?
Hello and welcome back for the third and final piece of the series of articles related to VCs. Our first article put us in the position to be able to ask ourselves if we were ready to approach a VC. Once we knew we were ready, we analysed how to approach them successfully, but now that we do know that we are ready and we have actually approach them and set a meeting with them, the last and key aspect in order to properly take on a VC is asking the right questions. Let’s dive in right away.
For many early stage start-ups, coming off seed rounds, organic growth of the business will only get you so far. At some point, you must consider VCs. We know you have done your homework and tapped your network for introductions and advice, and now that you are face to face, the first questions to ask should go as follows.
Are you a lead investor? Or do you follow along in rounds?
Ideally, finding a lead investor will ease the rest of the round and will take the monkey out of your back regarding who to negotiate with. From a legal/business standpoint, negotiating the terms with just one investor and having the rest of the investors in the round follow suit will certainly benefit all parties involved. It may be easy to find a few VCs that want to fill out a round, but most will want someone else to lead first. Many entrepreneurs will end up wasting their time before actually realizing this fact.
How many follow up investments have you made? And have you led them?
As an entrepreneur, you may not always want a follow up investment from the same investor. You may have different needs and goals at the next series and you may be looking for an industry investor to help you grow and give you advice rather that another financial investor only looking for return. Though if the first investor was a fit, then it’s far more efficient to get more money from the same source, than starting from scratch again.
Do you take board seats?
This is another question that can help you measure how invested the VC is in your project. Cash is easy to come by and easier to deploy, but a committed VC with well-earned reputation is not easy to find. Who will they put on your board, or whom would they consider having a seat, even if it is not them, could help you measure their dedication.
How do you interact-work with your portfolio companies?
Finding the right VC will offer much more than just investment and you should try to figure out what kind of additional value the VC you are meeting has to offer. Strategic guidance and a strong network are suitable treats, but value add such as help with recruitment and PR may also be key to your growth. At the end of the day, while fundraising you are looking to find a VC which has cash to offer, but any additional help a VC can provide should be factored in when making a decision.
What is the investment process?
We all know cash is always tight. As an entrepreneur, you always worry about timing and that can be crucial when talking to VCs. How many meetings, time invested in the Due Diligence, efficiency in the document preparation, or timing until closing are key. Some good answers to those questions can make your burning rate and your CFO get some extra nights of sleep not worrying about unpaid invoices.
The big takeaways from this piece is that you need to be prepared. Understanding the VCs and their speech with help you focus your effort and success. Asking about the way they interact and perform can help you be more time effective and improve your chances for an investment round. At the end of the day, you have to look for what’s best for your company, and not all VCs are suited for all projects. We want to help you be prepared.
From Inlea we just want to try to put tools at your disposal as you grow. Use these questions to VCs to help you ace your next meeting and speed your startup along to the funding it needs. At a minimum, you’ll go in sounding smarter and more prepared and you will set up more favourable negotiations.
At the end of the day, a VC is just another individual trying to make ends meet. Be yourself, be active, be ready and power through it all. Your company, your dream and your reputation as entrepreneur are at stake. Do your homework and go succeed. Stay Safe and successful!