My colleague Ricky Pelletier recently published a very informative post on how founders/CEOs can prepare for raising capital in order to speed up the process. He was spot on in many cases — for example, he explained how conducting a fundraise could be a big distraction from running the actual business. Requiring an investment of time and resources, fundraising has the potential to drag on for months on end (if not run properly). I did, however, want to supplement his piece with a few bits of advice of my own. Clearly, having one’s house in order before heading into a capital raise is a priority. Partnering up with your CFO and having the necessary numbers/documents teed up in advance can help ensure a smooth process. One often overlooked aspect is putting thought into the questions you should ask the VC to determine whether you will feel comfortable with the potential partnership.
Meetings with VCs Are Your Time to Ask Questions, Too
Like many in the VC world, I spend a great deal of my time at OpenView interacting with startup CEOs regarding their business/market/fundraise initiatives. Often, I find myself leading said discussions a bit too much and asking all of the questions. At that point, I try to pass the baton to the entrepreneur so that he/she can bring up the queries they need addressed. You would be surprised how often this results in a bit of silence. I cannot stress enough how important it is to seize this opportunity. Knowing who you will be surrounding yourself with over the coming years and doing your homework on the actual fund is just as important as getting your own information in order.
7 Questions Founders Should Ask VCs
Money is money, and there are plenty venture funds out there willing to provide it to you if you have built a compelling business.
- What comes along with the money?
- What type of partners and partner relationships will be coming alongside the investment?
- How many boards are these partners sitting on currently?
- Does the fund have experience investing in my sector or have a thesis on the market and where it is heading?
- Can the fund provide operational support alongside the check it will be writing, and if so, in what capacity?
- How have you helped organizations of similar size/stage scale their operations and customer base, and can you walk through an example where you have done so successfully?
- What fund are you investing out of, what is its size, and how much has been committed?
Questions along these lines will all help better educate entrepreneurs and ease in the selection process. You will also be able to sift through certain investers that simply are not a fit more quickly. In the end, this will save time and prevent you from spinning your wheels unnecessarily, which is a win-win for everyone.