It’s all about you.
Most founders who haven’t fundraised before sit in meetings with investors and try to impress them. They know the investor is looking for a bunch of things and try to tick those checkboxes while also being nice, cordial, and confident.
This is exactly the opposite of what you should be doing. You should be grilling potential investors in your first meeting.
And I mean grilling.
You’re hiring investors
To start with, there are two categories of investors: Value-Add Investors and Capital-Add Investors. The former will give you money and also help with something strategic like marketing. The latter will just give you money. Both are OK. I’ll refer to Value-Add Investors as “investors” from here on. That’s who we’re talking about.
The relationship between investors and founders is typically referred to as partnering. This is not how you should act when meeting investors though. Act like you’re hiring them, because you’re going to work with them.
Again, you should be grilling investors. You know how serious it is when you hire someone? This is 100x as serious as that. These people will give you money, advice, and control your company. This is serious business, literally.
How to do this? Always be operating under the assumption that you will choose no investors to work with. It’s not an easy thing to stomach but you need to truly believe this as truth, not just act like it. There are just as many bad investors out there as bad startups. You need to weed them out.
On top of that, you need as much leverage as you can get. This will give you leverage.
Lots of investors say they know they need you more than you need them. This is hogwash. While this is true overall, pragmatically it doesn’t matter because startups greatly outnumber investors. What this means is: investors have choice. You do not; you need to give yourself choice.
Your decision is way more important than theirs
Do not try to court or woo investors, by which I mean: don’t try to impress them. Others have written about how you should just tell the truth. Yes, that is true; do that. What I am saying is take it one step further. Realize that what matters is how you feel about the investor, not how they feel about you.
Why do I say this? Your decision to work with an investor is 100x as important as their decision to work with you. You will pick 1–2 major investors maybe 2–3 times total. They will invest in 10–20 teams/year, every year, for 10 years.
Every meeting you have with an investor should be about figuring out if they’re right for you. Focus on what you need for your company and then see if they fit that. If they don’t, move on. Move on.
Counterintuitively, just like dating, this is also good because the less you try to impress investors, the more they will be impressed by you. They’ll see you’re focused on what matters: hiring only the best, investors included.
Questions to ask
So then, what to ask?
- “Do you ‘invest in the team’? If so, who are 3 of your teams I can talk to who would agree with this?” Many investors say they invest in the team. Again, in reality, they don’t because they don’t have to — they have such deal throughput that “investing in the team” means “investing in celebrity or second-time founders”.
- “How much money do you normally invest? What’s the least you’ve invested? What’s the most? Why did you pick this range?”
- “How long does it typically take for you to close a deal?”
- “How did you pitch your LPs?”
- “Here is 1 thing we’re struggling with… How would you solve this?”
- “What do you think is 1 thing we’re struggling with that we don’t see? How would you solve this? Who would you connect us with to help?”
- “Where do you see yourself in five years?”
- “What do you think we should be doing differently with our marketing strategy?”
- “What do you think we should be doing differently with our distribution strategy?”
- “What do you think about our team?”
- “What do you think about our product?”
- “What do you think of our competitive landscape?”
- “What do you think about our timeline so far and going forward?”
- “What is the first thing you’d want us to do if we worked together?”
- “How do you see this investment playing out? When do you expect to make money? Are you looking for this to become a billion-dollar company or an acquisition?”
- “Why did you become an investor?” There’s no right answer.
You would ask all these types of questions when hiring an employee, because they’re being brought on to achieve certain objectives. Investors have objectives too, like making connections and providing guidance; but to start with, they just need to even complete the investment. Hence, ask technical questions about how they treat the matchmaking process. Figuring out how an investor works is a great start into figuring out how they think, and therefore how they’ll be able to help you, if at all.
Again, this is all about you. Investors work for you.
You are being invested in. Act like it
The private investment market is incredibly competitive now and will be for the foreseeable future. Many teams competing for the funding you want are more impressive than you — they have celebrity founders, second-time founders, products with $100,000 monthly revenue.
- Assume you will choose no investors to work with.
- Your decision is 100x as important as theirs
- Treat conversations with investors as if you’re looking to hire them. Grill them.
Investors pick winners. Founders should too.
Header image credit: miloslavvonranda/Deviantart