Right Skills

Reading Time Time to read: 3 minutes

5 Questions to ask VCs

Luke Smith

Investor

For an entrepreneur, fundraising involves taking lots of meetings and answering lots of questions. Investors have a short time to understand the business, get to know the team and evaluate the opportunity, which tends to result in a stream of questions, with the decision to invest (or not) dependent on getting good answers.

However, the questions in investor meetings shouldn’t be all one way and you can improve your chances of successfully closing a round of funding by better understanding the investors you are dealing with. You should focus your effort on the investors that are the best fit for your business and, in the happy event that you have a choice of investors, before choosing whose money to take you should understand how each investor works and the value they provide.

Key Takeaways

  • Understanding the VCs you are speaking to will help you focus your effort and positioning

  • Asking whether you fit with a fund’s strategy and focus can help you prioritise your meetings and improve your chance of raising a round

  • Investment processes and timelines vary between funds and it helps to understand up front what to expect

I’ve pulled together five quick questions you can ask VCs during early meetings to understand your potential fit, what to expect from the process and the value they can add. Some of these questions can be answered by browsing a VC’s website but others are best asked during a pitch meeting.

  1. How does my company fit with your sector and stage focus?

Not every fund has a sector focus but, for those that do, your chance of raising investment is much higher if you fit with that focus. It makes sense to concentrate on funds whose focus fits your business (see my previous post on getting to a first meeting with investors) and you can improve your chances by highlighting the fit in your positioning. Likewise, you should concentrate on VCs which invest in rounds of your stage and size. There is some value in getting to know investors for later rounds (see Invest in Lines, Not Dots from Mark Suster) but meetings with later stage investors are unlikely to turn into investment in the current round.

  1. Do you have anything competitive in your portfolio?

In an ideal world VCs would always mention at the beginning of a meeting if any of their portfolio companies are potentially competitive but, sadly, that doesn’t always happen. Needless to say, a VC which has already invested in a competitor is unlikely to invest in you, although some funds with large portfolios might make multiple bets in the same market. More likely, a VC which has backed a competitor is trying to get insight into the market rather than evaluating you as a potential investment.

  1. Where are you in your fund lifecycle?

Most VCs raise capital to invest in dedicated funds, when that fund is invested they need to raise further capital before they can make more investments. Before spending a lot of time with a VC you should make sure they have capital to invest. It is possible to invest outside of dedicated funds through special purpose vehicles or other instruments but it adds complexity to the process and is likely to take longer. Conversely, a VC early in their fund lifecycle is likely to be keen to put capital to work.

  1. What is your investment process?

Every VC’s investment process will be different and it’s reasonable to ask what to expect. The number of meetings and length of the process can vary widely so asking up front can help you run a good process with multiple funds having time to come to a decision. A word of warning, I’ve yet to meet a VC who describes their process as slow so take best case scenarios with a pinch of salt. ‘How long did your last investment take from first meeting to cash in the bank?’ is a useful question to move past overly optimistic forecasts.

  1. How do you work with portfolio companies?

A good VC offers much more than just investment and you should understand what kind of additional value the VCs you are meeting can bring. Strategic guidance and a strong network are table stakes for VCs but some (such as Forward Partners) differentiate through additional value add such as help with recruitment and PR. Ultimately, while fundraising you are looking to find a partner which fits your needs and any additional help a VC can provide should be factored in when making a decision.

Apply for Office Hours

We’re looking for great entrepreneurs with great ideas.

Apply here

Similar Guides