When an entrepreneur is seeking funding, you WILL be asked the tough questions. This is to ensure alignment with potential investors and to secure the best possible terms for the business. As a baseline, make sure you have answers to these:
- 1. What is the investor’s track record? Understanding the investor’s history with startups can provide insights into their expertise and success rate. This includes asking about previous investments, exits, and any notable successes or failures.
- 2. What is the investor’s involvement level? Determine how hands-on the investor plans to be. Some investors prefer to take an active role in guiding the company, while others may adopt a more passive approach. Knowing this upfront can help set expectations and ensure a good fit.
- 3. What are the terms of the investment? Clarify the specific terms, including the amount of equity the investor will receive, any voting rights, and the expected return on investment. Understanding these terms is crucial for maintaining control over the company.
- 4. What is the investor’s timeline for returns? Investors typically have a timeline in mind for when they expect to see returns. Knowing this can help align business goals and strategies with investor expectations.
- 5. What value can the investor add beyond capital? Many investors bring more than just money to the table. They may offer valuable industry connections, mentorship, or strategic advice. It’s important to assess what additional value they can provide.
- 6. What is the investor’s exit strategy? Understanding the investor’s preferred exit strategy, whether it’s through an acquisition, IPO, or another method, can help ensure that both parties are aligned in their long-term goals.
- 7. How does the investor handle challenges or setbacks? It’s important to know how an investor reacts to challenges. Do they offer support and guidance, or do they become difficult to work with? This can be a critical factor in the relationship.
- 8. What is the investor’s decision-making process? Understanding how decisions are made, including who is involved and how long it typically takes, can help manage expectations and streamline communication.
- 9. What are the investor’s expectations for growth and milestones? Clarifying what the investor expects in terms of growth and milestones can help ensure that both parties are on the same page and working towards common objectives.
- 10. What is the investor’s approach to follow-on funding? It’s important to know if the investor is open to participating in future funding rounds and under what conditions. This can impact the company’s long-term funding strategy.