Turning the fundraising process on its head - five questions that will help you pick the right VC

Fundraising from the other side

It’s time founders turned the fundraising process on its head.

Until today, VCs in Europe (in most investment rounds) have been driving the questions and overall due diligence process, but I’m a firm believer that entrepreneurs have the right to, and should, make this process a two way-street.

(Most) VCs carry out thorough due diligence on founders and their companies before presenting a term-sheet. Entrepreneurs should do the same to VCs before signing. Choosing an investor and board member is one of the most important decisions founders will ever make — and a decision that’s close to irreversible.

As a former entrepreneur, I fully recognise you don’t always have the luxury of choice and time, but the European ecosystem has come a long way. There’s now a lot of competition and diversity within the VC ecosystem for entrepreneurs to choose from. Now, more than ever, founders can and should be critical about their prospective investors and ask them hard questions too. In the first part of this blog series, I’ve compiled five practical questions that will help you pick the right investor and, if you don’t have the luxury of choice, these questions will hopefully give you some key insights and help set expectations.

1. Do they have relevant experience that will help accelerate my business? You need to establish whether there’s investor market-fit. The firm (and partner) in question should have relevant experience in both the market, business model and stage you’re operating in. You want to partner with someone that can (truly) help you navigate the next set of challenges you and your company will be faced with when moving to the next stage. To really help accelerate your business, the VC needs the right kind of skills, network and time. And don’t underestimate this last point. Many VCs are stretched in terms of time and may not have the bandwidth required to actively support their portfolio companies.

2. Do they share your level of conviction? Does the VC (genuinely) buy into the long-term vision and opportunity? Bottom line, you should find a partner and firm that’s equally bullish, not just someone who is willing to write a cheque. This will have a massive impact on question #1.

3. Are you aligned on the core business goals? This might sound obvious, but ensure you review your business plan and core milestones with your prospective investor. This is an important process that will provide you with valuable feedback, and will flesh-out the areas disagreement. Depending on your business model and stage, this will raise important questions, such as:

  • What does success look like?
  • What are the company’s key milestones?
  • Is it time to focus on growth or profitability?
  • Are you ready for international expansion?

4. What is it like to work with them in both good and bad times? Talk to the VC’s current portfolio companies. Find out whether they’d recommend the firm, what it’s really like to work with the team there and how they deal with the ups and the downs of the entrepreneurial journey. This is perhaps the most important question given the irreversible nature of your decision, and how challenging the entrepreneurial roller coaster can be.

5. Can the VC participate on follow-on investment rounds? Building a global success story doesn’t happen overnight — it takes time. You need to consider how big the VC’s window of support is, whether they can do their pro-rata in the next round, what round they’ll get tapped out and whether they can lead your next round.

These are simple questions, but getting to the bottom of them can often be challenging, particularly if you’re a first time entrepreneur and aiming to run a fast fundraising process. In the next part of this blog post series, I will dive into how to answer these questions.

I hope this was useful, feel free to touch base with me on twitter.