Founders - Here's What You Should Ask Potential Investors

A Thought Leader Guest Post from Micah Rosenbloom of Founder Collective:

The 12 Questions All Founders Should Ask VCs

Entrepreneurs are often so fixated on “getting to yes” with a VC — and will go to great lengths to answer any question posed to do so — that they forget to ask the VC any questions. 

Here are 12 questions that founders should ask potential investors more frequently:

↗️ Do you lead?

You want to start your process by finding a lead investor. If a given fund doesn’t lead deals, keep talking to them, but prioritize finding a partner who will. Many processes die because founders can’t find a lead funder.

I can’t stress this enough. It’s easy to find a dozen firms that want to fill out a round, but most will want someone else to lead first. A lot of founders will get 3+ meetings into a process before discovering this fact — a HUGE waste of time.

➗ What % of the fund is this investment?

Generally, the more significant the percentage the better — it means the VC has more “skin in the game.” Caveat emptor, the bigger the number, the more closely the investor will be tracking your progress!

🪑 Do you typically take board seats?

This is another question that gauges how seriously the VC is taking your company. Financial capital is easy to come by and easier to deploy — reputational capital and VC time are the real currency in today’s venture market.

🏦 How much is reserved for “primary” vs. “follow-on?”

Most VCs make an initial investment and “reserve” funds to maintain their ownership in future rounds, or to help a struggling startup that needs cash. These reserves are usually described as a ratio, eg. 4:1.

So if a VC invested $1M into your seed round, they theoretically have $4M earmarked for your future rounds. But don’t assume that...

Read the rest of this article at foundercollective.medium.com...

Thanks for this Guest Post and its graphics to Micah Rosenbloom, Managing Partner of Founder Collective.

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