Pitching your startup to venture capitalists (VCs) or angel investors is a crucial step in growing and scaling your business as a startup founder. But it’s not just about persuading these investors to give you funding – it’s also about finding the right fit for your company. After all, the relationship between entrepreneurs and venture capital firms can be long and complex, and choosing an investor who aligns with your values and can provide value beyond just financial capital is essential. Think of it in terms of partnerships.
With that in mind, here are some key questions you should ask potential investors during a fundraising process (in this case, it’s likely to be a pitch meeting) to help you assess how they like to work with startups, how they can help you succeed, and what their venture capital funding thesis is.
Tips on how to prepare for a pitch meeting with investors
Before you ask venture capitalists questions, you should ensure you're coming well-prepared. After all, pitching your business plan to strangers can be a nerve-wracking experience, especially considering that investors judge you individually and your company.
Here are some tips regarding a pitch meeting with a potential VC:
- Don’t worry about styling, focus on communicate your idea clearly
- Don’t rely on a script
- Don’t overestimate or inflate your metrics
- Don’t underestimate competition
- Prepare two pitch decks
- No name dropping and fake stories
Preparing for a meeting with an investor? Learn more about The Dos and Don'ts of Investors' Pitches.
What Questions Should You Ask Venture Capital Firms?
1. How do you typically work with startups?
Understanding how an investor approaches working with early-stage startups is essential, as this can give you a sense of what to expect from the relationship. Some investors prefer to be hands-on and actively involved in the day-to-day operations of the companies they invest in, while others take a more hands-off approach. Additionally, some investors may focus on specific industries or stages of development, so it's worth finding out if they have any preferences in that regard.
2. How do you help founders succeed?
Investors can provide value beyond just funding your financing round, and it's worth finding out how they can help you succeed. This could include providing access to their network, including introducing you to other founders in their portfolio companies, offering strategic advice, or connecting you with other founders or experts in your field. It's also worth asking about their approach to mentorship – do they have a structured program in place, or do they prefer to offer more informal support?
3. What is your typical check size and investment stage?
It's essential to clearly understand how much an investor is willing to invest and at what stage they typically invest. Some investors may only invest small amounts at the seed stage, while others may be willing to invest large sums at later stages of development. Knowing this information can help determine if an investor is right for your company.
4. Can you explain your investment thesis?
An investor's investment thesis is the criteria they use to evaluate potential investments. Understanding an investor's thesis is essential as it can give you a sense of what they're looking for in a startup and whether your company aligns with their investment focus. For example, some investors may be focused on a specific industry or geographic region, while others may be more interested in companies with a particular business model or market opportunity.
5. What value do you bring beyond financial capital?
As mentioned earlier, investors can provide value beyond just financial capital, and it's worth discovering what value an investor can bring to your company. This could include access to their network, expertise in a particular industry, or connections to other resources such as legal or marketing support.
6. How do you approach risk and what is your approach to due diligence?
Risk is an inherent part of the high-growth startup world, and it's important to understand how an investor approaches risk and performs due diligence before investing. Some investors may be more risk-averse and take a more thorough approach to due diligence, while others may be more comfortable with taking on higher levels of risk. Understanding an investor's approach to risk can help you determine if they're the right fit for your company.
7. How do you approach board participation and management?
Understanding an investor's expectations for board members' participation and management team is important, as this will impact your company's decision-making processes. Some investors prefer a more hands-on role in the startup's management, while others take a more advisory approach. It's worth finding out how an investor sees themselves fitting into the management structure of your company.
8. What is your approach to follow-on investing?
Follow-on investing refers to investing additional capital in a company after an initial investment. It's worth finding out an investor's approach to follow-on investing, as this can give you an idea of their level of commitment to your company and whether they're likely to support your growth in the long term.
Questions Venture Capitalists May Ask You
It's also important to know what kind of questions venture capitalists may ask you during pitch meetings.
We've collected a list of some of the most typical inquiries potential investors ask entrepreneurs during startup pitch meetings to assist you in improving your chances of success.
Before discussing valuation, cash flow, or saas metrics, you will typically have one or two first meetings to convince investors or firms that your startup is a solid investment prospect.
- What problem are you solving?
- How does your startup solve this problem 10x better than existing solutions? What makes your product unique?
- What is your startup’s competitive advantage?
- Why are you and your co-founders the right team to solve this problem?
- What is your business model? What’s your roadmap toward profitability
- What is the actual addressable market for this product?
- How will your startup acquire customers? What is the distribution model?
- What milestones do you hope to reach with this round of funding?
- What positive early traction has the company achieved so far?
- What is your track record in terms of getting companies off the ground?
Are you preparing your fundraising tactic? Learn more about The Key Questions Venture Capitalists Ask When You Pitch Your Startup.
As a startup entrepreneur, your chances of successfully raising a round from venture capitalists and angel investors increase with your level of preparedness.
The preparation consists of asking and responding to the right questions when put across the table from venture capitalists and angel investors.
- What value can they bring beyond capital
- What is their investment thesis
- How involved do they like to be in their portfolio companies
- What does their due diligence process looks like
- Their typical check sizes and stages they invest in
Investors will likely ask you about:
- Why your team is best-suited to execute on this startup idea
- Evidence that customers want to use your product
- Market opportunity
- What are the risks of failure
- How will you scale the business