8 Questions I Ask Every Startup
As a kid, my grandparents bought me a ton of books. My favorite collection was called 十万个为什么, which roughly translates into “One Hundred Thousand Whys”.
That’s a lot of “Whys”.
So in most of my meetings with founders, I’m asking them “why does this happen?” or “why is this the way things are done?” and countless other annoying “why” questions. I’m still the kid who gets on people’s nerves by asking so many whys.
You get asked a lot of questions if you are fundraising, but I’ve distilled the list down to a handful of the essential and fundamental questions for founders raising venture capital.
1. Why are you building this company?
Some people might call this “founder-market fit” or “founder-problem fit”. They are looking for the founder who has the right passion and background to build this startup.
But I think it’s even more basic than that. I get excited when I meet a founder who is doing their life’s work, like they would die (on the inside) if they weren’t building this. I cannot imagine Ryan Petersen working on anything other than making global logistics more efficient, I cannot imagine Lisa Q. Fetterman doing anything other than delighting people with healthy and delicious food, I cannot imagine Iba Masood doing anything other than making building products easier and leveling the global playing field for talented people.
The best reason to start a startup is you can’t imagine doing anything else other than to start that company.
2. Why do people want this more than any other product?
Startups go through 3 phases:
- very hard and;
- damn near impossible.
So they can’t just make 10% improvements on the status quo. Startups either create a new paradigm or make something 10X better. And it has to be a 10X improvement on something customers care about and want to pay for.
3. Why is now the right time to build this startup?
The country’s (or world’s) largest steel company was only built once, the handful of biggest automakers were created in the same era (until Elon screwed that up), the world’s dominant search engine was only built once. There are moments in time where the technology and customer demand aligns to give the conditions possible for a new monopoly to be created.
But don’t take it from me, Bill Gross at IdeaLab who has founded over 100 startups analyzed the biggest factor for startups to succeed and timing was the number one determinant of success, ahead of team/execution, funding, idea, and business model.
4. Why is your team the one to do it?
Hundreds of automakers in the US consolidated into 3, and the same happened for airlines, Internet portals, and so on. Facebook owns the three largest social networks.
What is it about your team’s creativity, hustle, approach, expertise, insight that will allow you to end up being that single dominant leader of the category?
5. Why isn’t everyone already working on this?
This is the Peter Thiel question. Ideas that are too obvious end up getting overcrowded very quickly. Dominant platforms are usually built in the face enormous skepticism, who wants to stay at a stranger’s house? Large companies have 100X more resources to pursue opportunities that seem obvious. What is your unique insight that very few people agree with you on? If they disagree with you, you’ll have a better chance of building your platform without the intense competition that obvious ideas face.
Most people think answering these 8 questions in this blog post is easy. I think it’s actually insanely hard, which is why most general partners at VC firms (Series A and beyond) meet hundreds of companies a year, but only write 1–3 checks.
6. Why does this platform get more powerful over time?
If there’s no network effects, that’s usually a sign of low barriers to entry and it increases the risk of the startup itself being disrupted by new companies or big tech platforms copying the product.
That’s probably why people aren’t making calculator apps and gaming startups have a hard time raising institutional capital.
This is also the “Why will you dominate this market?” question. How does your competitive moat, as Warren Buffett would say, get wider over time.
7. Why will you do this better than a bigger tech platform company?
Google, Facebook, Amazon, Microsoft and many of the largest tech platform companies are trying to avoid the fate of Kodak. They are competing very hard in new emerging technology categories.
How will your startup find the right segment of the market to build from so that you can gain an edge in that category versus a broader tech platform. Startups have the advantage of focus and speed, but they also have to channel that into the right problem to outrun Bezos:
As you might imagine, I often get asked by young entrepreneurs for advice on how to start a business. What many seem to…www.theonion.com
8. Why Should I Invest in Your Startup?
This may seem like the most obvious. A venture investor only invests in 1 out of 100–500 startups they see.
Why are you ultimately the opportunity for an investor to generate the greatest returns out of the entire set of opportunities they see every quarter / every year?