Questions You Should Ask an Investor Before Receiving Funding
When it comes to the funding process, entrepreneurs often view potential investors as the party that holds all the power during due diligence. And while it is important to prove that your business is worthy of investment, it is also important to remember that a discussion about funding always a two-way conversation. Just as the investor is trying to figure out if your company is the right fit for them, it is your job to determine if that investor is the right fit for your venture. Vetting your investors will help you avoid future tensions, potential legal issues, and will help you curate a group of quality shareholders to propel your company toward success.
Here are some key questions you should ask potential investors:
- How are you planning to be involved in our company? – There are different levels of involvement that you can expect from investors. Whether you want them to serve in the very involved role as a Venture Capitalist or in the more passive Angel Investor role, the degree of involvement is important to establish early on. If there is even a slight disagreement on the topic of management or involvement from the beginning, it will certainly lead to more arguments and areas for conflict in the future. Asking potential investors about the level to which they plan to be involved in your start-up will allow you to set expectations between both parties for the future.
- What is the biggest red flag to you in our business plan? – Getting feedback from an investor on how you could improve will tell you a lot about them. Also, addressing investor concerns regarding your business will help you identify weaknesses so that you can work on them and improve your plan, deck, and business model in general.
- What are your most successful investments and what are some investments that have not been so successful? – Learning about an investor’s past successes and failures will give you some insight into their level of expertise or amount of connections in certain industries. Additionally, finding out why one of their investments failed or how they helped another company will help you gain a better understanding of their skills, areas of knowledge, and work ethic.
- Do you usually make follow up investments in the future? – Whether or not your company will look for more funding down the road, it is always nice to know if the investor you are speaking with will able to provide additional funding in the future. Although their answer may not affect your decision accepting the funding now, this may be good information to keep in the back of your mind for later. Knowing whether or not the investor has made follow up investments in the past may give you an idea of what to expect.