12 Questions To Ask VC Investors As A Founder

Overview

Fundraising is a pivotal step in your company's journey, but it's about more than just the money—it's about entering into a partnership that aligns with your vision, values, and growth trajectory. As you meet with VCs that show interest, it's crucial to approach them with a mindset of mutual discovery. This means not only being ready to answer their questions but also knowing the right questions to ask them.

In this article, we’ll be diving into some questions every founder should consider asking VC firms during the fundraising process. By asking these questions, you're not just vetting their financial commitment; you're evaluating their fit as a partner in your venture's journey. Whether you're a first-time founder or a seasoned entrepreneur, these questions will empower you to speak to VCs with confidence and clarity, ensuring that you forge relationships that fuel not just your immediate funding needs but your overarching mission and vision.

What do you need to know about a potential VC investor?

Before we go over any questions, you should be aware of what key matters to cover when meeting with potential investors since these are the foundations of the questions we lay out in this article. Knowing what you should be concerned with will also give you some useful context to think of more questions that are more tailored to your business’s unique fundraising situation.

The Investment

As early as possible, you will want to know what a potential investor’s financial commitment to your business could look like. You should consider the potential terms of the investment (investment amount and investment terms etc.) as well as the logistics involved  (timeline, lead vs. co-investor, due diligence requirements, etc.). VCs have varying procedures, preferences, and expectations when it comes to how they invest, so being aware of these early on will allow you to assess their fit as an investor in your business.

Who They Are

Meeting with a potential VC investor gives you the opportunity to learn more about them than what is revealed on their website. You should discover as much as you can about the VC and their team to assess their credibility and track record as well as to gauge their overall fit early on; after all, you should be choiceful of who you bring onto your cap table. 

The Post-Investment Relationship

Your contact with an investor does not end once you’ve received funding. You will want to know what your post-investment relationship with them will look like. This involves asking for clarity on various matters like what support the firm can provide the company aside from capital, their participation in the future financing rounds of their portfolio companies, and their preferred exit strategy, among others.

As a general note, it is crucial to read up on whether your startup fits the investment mandate of potential investors before reaching out to them in the first place. This involves doing initial research by looking through their company websites, recent news articles they’ve been featured in, and their past investments. Before an initial meeting, it’s furthermore important to look at the backgrounds of the firm’s partners and team. 

The Must-Ask Questions to VC Investors

What is your fund’s investment mandate and typical investment amount?

A VC firm will make investment decisions according to its fund’s investment mandate. A fund’s investment mandate is essentially the criteria that the VC firm needs to follow when making investment decisions. The mandate can specify the investment amount, the industry or vertical focus, the country or regional focus, and the growth stages of a startup it invests in.  Understanding early on about the VC firm’s mandate can help you gauge your company’s fit with their mandate and their ability to meet your fundraising needs. Understanding how well  your company fits their mandate will also help you assess the likelihood of them investing in your company.

What expertise or experience do you have in this industry?

A VC firm with experience in your industry can give you more than just capital. It can provide you with valuable insights, mentorship, and industry-specific advice. Their understanding of the market and your business model allows them to bring new ideas to drive operational efficiency, identify opportunities, navigate challenges, and manage risks. Experience in your industry means that it has likely developed a network of potential customers, partners, and talent that you can potentially leverage. All of these should be taken into consideration when choosing between potential investors as this expertise and experience in your field can have a multiplier effect on your growth.

Aside from capital, what value-add or support do you provide for your portfolio companies?

In addition to providing capital, VCs can add value to your company through other means. This includes  providing valuable insights, industry expertise, and access to their network, as discussed under the previous question. Some could also provide operational support to different functions within your business, from product development to sales. As emphasized earlier, fundraising involves securing not only the money required to grow your business but also the right strategic partners who will provide the support to do so.

How involved are you typically in your portfolio companies’ operations and decision-making?

Some VC firms prefer to take a hands-on approach and want to have a say in strategic matters like geographical expansion, product development, and fundraising. Others prefer to be more hands-off, preferring to act purely as a financial investor. Knowing this upfront helps set expectations and ensures that their style of involvement matches what you're looking for in a partner.

What is your typical investment process and timeline?

While the specific stages of the investment process may be somewhat standard across VC firms, how a firm does each stage and how long each stage can take to complete will vary significantly from firm to firm. Their answer to this question will likely cover the internal meetings that need to be completed, the approvals that have to be given, the due diligence process to be conducted, and the time requirement for each of these to be completed. Getting clarity from their side will help you to better set your expectations and understand how their firm’s process and timeline aligns with your own.

Would you be able to lead the round or are you only looking to co-invest?

This will tell you if the investor you are speaking with is willing to invest a major part of the round or if you will need to find another lead investor. If the VC firm you are speaking to is looking to co-invest, they often may wait to commit any capital before a lead investor has been secured. If a reputable VC is willing to lead the round, their participation can signal confidence in your company and attract other investors to participate in the round. 

The lead investor is often responsible for negotiating the terms of the investment that co-investors will follow. Furthermore, the lead investor will often be a primary strategic partner for the business, therefore their answer to this question will tell you if they are also willing to fill this role.

How much of the fund is allocated towards follow-on investments? How often do you typically make follow-on investments?

Understanding a VC's policy on follow-on investments into their portfolio companies can give you insight into their commitment level, how it supports companies through various growth stages, and what your company’s future investment rounds will look like. Follow-on investments can be crucial for your venture’s continued growth as this provides your company with additional capital to invest into the business and this also signals your company’s attractiveness as an investment to other VC firms. Asking potential investors about the matter early on can help you select which investor may be best for your business’s long term success.

Out of which fund will the investment be made? At what stage of the fund cycle is it in?

Knowing which specific fund the investment will be made from can provide some useful background knowledge on the fund such as how large the fund is, when the fund completed its raise, and what investments it has already made. Furthermore, if the firm has already exited from a number of funds and will be investing from a younger fund, this indicates how much investment experience the firm already has.

Asking what stage of the cycle their fund is in, you’ll get an idea of how aggressive the firm currently is in making investments and the firm’s answer will also inform you about the probability and timing of its initial investment. The answer may also give you an idea on the likelihood of a follow-on investment in your company and when it may potentially target an exit. Generally, a fund will have a fundraising stage, an investment stage, a portfolio management stage, and an exit stage. 

The Good-to-Knows

What are your expectations/requirements on reporting for your portfolio companies?

Understanding investors’ expectations for reporting is crucial in maintaining a transparent and effective working relationship. VCs typically require regular updates and communication on various aspects of the business post-investment. These can cover a range of subjects related to financial performance and  strategic developments, but expectations will ultimately vary from one investor to another. It is important to align expectations upfront in order to know what is expected  from founders and their teams, especially with multiple investors with different reporting requirements.

What is your preferred exit strategy and timeline?

VCs will not want to be on your cap table indefinitely and will invest with an exit in mind. Asking this question will give you an idea of how long your partnership with them will be and how they plan to exit their stake in the company.. Ensuring that an investor’s planned exit strategy is aligned with your envisioned partnership and long-term plans for the company may be important for your strategic direction.

Do you see any potential conflicts with other portfolio companies? What is information sharing like within your portfolio?

A good VC investor will likely be upfront about any potential conflicts within their portfolio. However, if the matter is not brought up, you should ask them about potential conflicts in their portfolio and how these will be managed as you will need to assess how these line up with your own strategic priorities. You may want to avoid any VCs that have invested in competing companies to avoid any conflicts of interest and ensure protection of proprietary information. On the other hand, you may want to gain the opportunity to collaborate and access adjacent industry peers to explore potential synergies. 

Who in your firm would be the primary contacts that will oversee the investment?

Your assessment of the primary contacts at the VC should be a key factor to consider when evaluating the overall VC firm as a potential investor. A senior professional at the VC firm will either indirectly or directly (via a board seat) advise on strategic matters, giving them significant involvement and influence over your business. Therefore, it would be in your best interest to take a look at their experience and credentials to understand their expertise and the impact they’ve made in other portfolio companies. It is also important to think about their level of commitment to your vision and their influence within the VC firm, as this may significantly shape your relationship with the VC firm.

Conclusion

After going over some important questions to consider asking VCs interested in investing in your venture, it is important to recognize that these questions are more than just a checklist. These are key considerations when assessing establishing a transparent, informed, and mutually beneficial relationship with your potential investors. Each question serves as a key to unlocking insights about the VC's investment philosophy, operational style, and long-term vision, aligning them with your startup's goals and needs.

As a reminder, fundraising for your business is not just about securing the capital you need to grow and scale; it is also about finding the right partners to support your venture’s success. Having your own due diligence process allows you to assess not only the financial viability of the partnership but also the value-added benefits they bring to the table.

As you embark on your fundraising journey, armed with these questions, stay mindful of the unique dynamics of your startup and the specific context of your industry. Tailor your approach to each potential investor, using the insights gained to build a foundation for a long-lasting and successful partnership.

Ultimately, the right VC relationship should feel like a strategic alignment, where both parties are invested in a shared vision of success. By thoroughly vetting potential investors and understanding their approach and expectations, you position your startup for not just immediate growth, but sustained success.

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At Alehar, we're deeply passionate about M&A and fundraising, equipping us with the expertise and extensive network needed to carry out transactions efficiently and represent the interests of our clients effectively. Our expertise is particularly valuable for transactions ranging from USD 3m to 200m, as we guide companies through every step of their M&A and fundraising journey (including both equity and debt transactions)

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