This video discusses key questions entrepreneurs should ask investors to understand their investment process and post-investment engagement. Questions cover conversion rates from meetings to term sheets and term sheets to checks, and frequency of post-investment meetings.
What this video covers
What percentage of your meetings lead to term sheets? This is a very good question because, essentially, what you’re going to understand, or you’re going to get better access into the funnel of that venture capital or that angel investor or whichever investor type of profile that you’re dealing with.
Next is, what percentage of term sheets actually lead to checks? Here, what you want to know is, once they’ve already given that promise to make an investment in a business, the last thing that you want is that the term sheet gets pulled or whatever happens that they’re not giving you the money, and you don’t get that check, and you don’t get the money into your bank account.
How often are we going to be meeting after the investment? This is a great question because it’s going to give you an understanding of the level of expectations that they have in terms of meetings.
How often do you lead rounds? This is a great question because, especially at the beginning, you want to separate the ones that lead from the ones that are just followers because, in many cases, investors are like sheep; they go where everyone else is going.
How many follow-on or follow-up investments have you made? I think that this is great in terms of a question for two different reasons. On one end, you’re going to gain better visibility as to how involved and engaged they are with companies after they have made an investment.
What could we improve on the pitch? This is a great question because, at the end of the day, those investors want to invest in entrepreneurs that listen. They are investing in you, and then they’re investing because they want to help you in building your business.
What’s your timeline? You want to ask this question because it’s going to give you an understanding as to what to expect in terms of when they may make that investment. You’re not going to be waiting forever. You need that money now, and for that reason, you want to understand whether they have the money to deploy now, and if they have the money to deploy now, how long does it actually take them to deploy such money?
Who would you put on our board? That’s a really interesting question because it’s not about the firm that’s investing in your company, it’s about the partner that is going to be representing that company in terms of their portfolio companies that have received an investment from them. That’s essentially a venture capital firm.
What do you expect from this investment to do for your portfolio? This is another good one because you want to understand what the expectations, what kind of multiples they’re looking for in terms of a potential exit, and you also want to understand if that’s going to align with the way that you’re seeing things because the last thing that you want here is to have someone that puts a tremendous amount of pressure in your business, a tremendous amount of pressure on the execution, and you cannot afford to have that.
Who else needs to approve this investment? Especially when you’re dealing with corporate investors like the corporate venture arm of a larger corporation, they’re going to have all types of committees that are internally established to approve or reject certain investments that are going to be considered.
How much do you reserve for follow-on rounds? Here, you need to understand what’s that typical amount of money, how much would they potentially invest in your business down the line, and even perhaps how much have they already invested of their current fund so that you’re not wasting your time with people that don’t have dry powder to invest in your business?
Would you mind introducing me to a founder of a portfolio company in your venture fund or even you as an investor individual that has failed? You want this investor to introduce you to an entrepreneur that they have invested in that has failed.
