What questions are you not asking?
How to ask better questions as a VC or entrepreneur.
There definitely is such a thing as asking a stupid question, contrary to what some people might tell you — and asking questions is essential for both venture capitalists and entrepreneurs. In this post, I’ll dive deeper into why asking the right questions is important (fyi, it’s a different answer for VCs vs entrepreneurs) and I’ll give you a couple of tips for forming questions you might be forgetting to ask.
Why is asking the right questions important for a VC?
I’m starting this post off with probably the most straightforward point. Put simply: asking great questions is important for a venture capitalist because a failure to ask the right questions will almost certainly lead to an investment going bust. Making a good investment in a startup is already tough enough (we know that 90% of startups fail), so if you’re doing yourself the disservice of not gathering all the pertinent information about a company during your due diligence period, you might as well be setting your money on fire. Easy enough, right?
Why questions are important for an entrepreneur.
While asking the right questions is what a VC needs to do, a founder needs to ask enough questions. But what does that mean?
Let me tell you. First of all, being an entrepreneur is way riskier than being a venture capitalist. This should be obvious as you are essentially putting all your eggs in one basket (your startup). So, as a founder, you need to ask yourself all the questions a VC will ask you — preferably before you are in the pitch.
But now comes the tricky part, and it has to do with the concept of the idea maze (here’s a great blog post discussing it if you are unfamiliar). In the article, the idea maze is described as the concept of a founder knowing everything about their industry — previous failures, current competitors, the state of technology, and more. But for the purpose of this post, I’ll paint it in a different light: as a founder, you need to ask yourself not just the questions that one VC might ask, but the questions that every VC might ask. You need to have thought about every single path your company should, could, and would go down as well as why and what the outcomes of those scenarios would be.
Now, this might seem obvious at first. “Luca, of course, a founder needs to know more about their own startup than just the topics that one VC might inquire about.” But the idea maze is so much more important to a founder than answering a VC’s questions. By going through the maze as a founder, you will find the answer to every tough decision you may come across. “Why are you going with X business model instead of Y?” “Why aren’t you targeting Z as your initial user base?” The list goes on. By going through the idea maze, you are answering any question a VC might ask and simultaneously figuring out exactly the right path for your startup — the path that leads you out of the maze. To put it both as simply and as boldly as I can:
If you theoretically could fully fill out your idea maze, your odds as a founder would go from a 90% chance of failure to a 90% chance of success.
Ok so now that we’ve gone over how a VC needs to ask the right questions and a founder needs to ask themself all of the questions, let’s dive into some questions you might be forgetting.
What are some questions you might be forgetting?
Now I am going to pose some questions that you might be forgetting to ask. I am not going to separate these by founder and VC because both parties should be aware of these common oversights. This is not an exhaustive list, and keep in mind that, although these are pretty general questions, the specific “right” questions change for every industry.
What happens at scale?
No, this is not, “Can your code scale?” or “Will you be able to scale your operations or supply chain quick enough?” This is a different kind of question about scale.
Say you’re running a marketplace. Ask, “Why would the nth person join to become a seller when there are already n-1 people selling exactly the same thing?” Maybe create ways for the seller to differentiate themselves, so, even if two people are both selling homemade honey sticks, there is room for differentiation (and thus growth even while at scale).
Another example might be an app where you get access to a person or place. Ask, “What happens when 50k people know about it and they all flood the place?” Maybe the better business model would be a paid subscription and not ad-gen because you’ll have fewer users with a higher LTV. These are the things you have to think about.
Is this 10x better and cheaper… for everyone?
The ‘everyone’ is the key part here. This is a trap that a lot of people fall into. Hell, I’ve fallen into it. A founder builds an app with a whole bunch of functionality. For the 0.01% of users who need all of those features, it is 100x better… great! But for everyone else who only uses 1 of the 20 features you built, it may only be 1.5x better… not enough to sustain growth and get users to stay instead of churnin’ like butter.
Why will you fail?
This may seem slightly pessimistic, but, trust me, it’s not. Because everyone will be happier in the end if the startup actually succeeds. Why ask this question?
Asking this question allows you to see the fundamental thing that you should be running from (or hell, maybe even chasing after) if you are a founder. Are you running from a high CAC? Are you chasing economies of scale? Are you running to differentiate yourself from a competitor? Are you chasing some specific milestone because your last round was tranched? Be open and honest with yourself and your employees with exactly what challenges lie ahead. If you do this, the whole company will be able to optimize and solve for these potential problems and steer the company in the right direction. This reminds me of the Mark Twain quote:
“The man who does not read has no advantage over the man who cannot read.” - Mark Twain
Someone who doesn’t pay attention to the ways they may fail is no better off than the person too stupid to figure out why they may fail. Knowing how you might fail is knowing what you have to do to survive.
Have you asked all of the ‘Cofounder Questions’?
Cofounder conflict is one of the most common causes of startup death. Asking the right questions early may just save your company. Although these types of questions don’t necesarily help you fill out the ‘idea maze’ they will help you avoid certain death. Examples include:
- What happens if you get in a fight or disagree? How do you solve that?
- Do you want to take this company public and work on it for 10+ years or try to get acquired after 3?
- What is your work style like?
- How do you handle stress? How do you handle happiness?
These are probably the most simple, yet most important, questions to ask.
Did this article help you understand why questions are so critical to both VCs and founders? Or did it help you to ask some questions you may have been forgetting to ask? Let me know what you think! :)
If you liked this and would like to read more, check out my latest blog post: Is it possible to be too curious?, or my last startupy post: How to Know You’re Onto Something
About Me!
Hey y’all!👋 My name is Luca. I’m a Partner @ Crescent Fund🌙 and a student @ UCLA. I love building, brainstorming🧠, and absolutely everything having to do with product and the startup world🚀.
Feel free to reach out to me via LinkedIn, Twitter, or my email — always happy to chat!
