As an Entrepreneur you may expect that meeting with an investor is al about answering one question after the next about your startup ideas. But what about your questions to them. As a business you also ned to ensure you find th right person r company with who to start an relationship with. As with personal relationships, you are hardly likely to go on a date with some one without finding out certain details about them.
What are the questions you ned to be asking investors? How will you make sure the person you are talking t is the right person or company with whome to move forward with? Here are threeinnitial questions that ma help you to decide if the Investor you are talking to is someone to concidder.
1. What will you bring to the table?
Apart from the money the investor brings to the table, what else will they contributing.
A good investor will have strong connections to customers, partners and possibly the media. They will tell you exactly where they are connected. Less attractive investors will give you general answers like "we are very connected" yet won't tell you exactly who they are connected to and how. We are not suggesting that you ask for a copy of the firms' contact list, but it's fair to ask what companies they are sitting on the boards of, have invested in, and have an ongoing relationship with.
Unfortunately, more often than not, you will find that most investors don't have much more than cash. In most cases you're so worried about just getting a check that you don't even think about these questions. But it doesn't hurt to ask. It proves to investors that you are sizing them up as much as they are you. It's also a good indication that you are as serious about finding a solid partner as they are.
Don't be afraid to shake the investors up a bit. It keeps them honest... hopefully.
2. How many successful exits can you tell me about?
Investors, particularly venture capital investors, are all about the "exit" or sale of a company. While building a company that lasts and throws off cash is useful to the Founder, the partners in a venture firm only get paid when the company sells.
So the question is - how many times have you been successful as an investor?
Believe it or not, many investors will start to sidestep this issue because frankly, it's hard to be successful as an investor. Don't let them off the hook. Keep drilling down about their successful investments. When did they invest? How were they involved? Did the existing management change? How much did they take off the table when it was sold? Investors often let entrepreneurs assume that if they make investments, they must be good at it. They may be, or they may not be. Make them prove it to you. The good ones have no problem with this question. When we broker deals between investors and entrepreneurs, we find that sollod investors are more than happy to answer this question. It gives them th opportunity to boast a bit, so why not.
3. What have been your biggest successes?
This is a two-part question. It's not just about whether or not the investor has been successful in their career (do not assume they have) but whether or not they have been successful at what you're doing.
The difference is not only the quality of the firm, but how well they understand your industry or business.
If they are asking fundamental questions like "how does search engine marketing work?" while you're pitching your Web company, you're probably in the wrong place. If they are asking "what is your Cost Per Acquisition for paying customers across the different search engines" then you're probably closer to the right fit.
Your ideal investor has been successful in a business just like yours. Not surprisingly, most investors invest in businesses that they have made money in previously, since they understand the path to success.
Make sure that you are just as picky when it comes to choosing an investor to support you. Yes the money you need may be important, but the relatioship itself, a solid reputation, good contacts and strong industry knowledge may be the difference between long term success and failure for both of you.
