5 Questions for Entrepreneurs to Ask Before Accepting Investment
And the story of my first reverse pitch to an entrepreneur
The Reverse Pitch (Short Version)
The mental image that forms when one imagines an entrepreneur raising investment capital is that of an entrepreneur coming into the posh offices of a Sand Hill road venture capital firm and pitching using a Microsoft PowerPoint pitch deck to one or more partners dressed in smart casual attire.
Let’s imagine a different scenario. Imagine a venture capitalist pitching an entrepreneur on why the entrepreneur should accept their capital and allow them to become a shareholder. We will call this the reverse pitch (I did my first full reverse pitch to an entrepreneur last week — see below for the story). This process helps the entrepreneur understand what role and or value the investor can provide for the company; this process also allows the investor to establish a common understanding with the entrepreneur.
Here are five key questions that can serve as the base of a reverse pitch:
- Why are you interested in investing in this company specifically?
- What do you know about the market that the company is operating in?
- Who do you know that could help this company?
- How will you help raise follow on funding at the next round and or additional capital for the current round?
- What is your track record as an investor both in this space and overall?
Why are these five questions important? An investor in a startup typically brings some combination of the following: the investor’s network/connections, knowledge/advice, and capital. These questions are designed to start a conversation around those topics. Capital is particularly important if you will need to raise more money now and or in the future (which many high growth startups do). In that case, you definitely gain a lot of value from an investor who can help directly (making introductions for you to other investors with a high probability of investing) or indirectly (by acting as a strong positive signal) pull in additional capital as fast as possible for your company.
Having an investor discuss these topics and or asking an investor directly is one way to answer these questions. Another way is to reference check these questions with founders they have previously funded. There are of course other topics you, as an entrepreneur, should understand and discuss with a potential investor before you accept their capital, but the above should serve as a useful starting point.
My First Reverse Pitch (Long Version)
First, some context. FundersClub is a curated platform for late seed and Series A companies with growth/traction to raise venture capital funding. We invest anywhere in the world, with checks usually ranging from $200k — $600k, in software and hardware technology or technology-enabled companies.
An entrepreneur that I know is planning to raise capital soon. I greatly admire and respect this entrepreneur; I have followed the company since its beginning. The company is growing quickly, and the ingredients are there for this to quickly turn into a “hot deal” (a term used to describe financing rounds with a high level of interest from multiple investment firms). I want FundersClub to participate in this round.
So as an investor, how do I invest in the round?
As an investor, I quickly learned that sitting back and waiting for entrepreneurs to come to you is not enough to succeed; you have to lean in and go out there to find amazing founders and companies to work with (practically speaking, this means we do a combination of inbound and outbound programs to discover companies to work with).
While we already actively communicate the benefits of FundersClub to founders both on our site and in person, I thought it would be fun to do a full Microsoft PowerPoint reverse pitch for the entrepreneur. It is also important for me that an entrepreneur understands why we want to work with them on this particular company and for me to also re-iterate the value-add that FundersClub can offer their company.
Note: Though we take investment seriously, to keep things somewhat on the lighter side, some of the pitch deck was done in jest.
Part One of My Reverse Pitch
The first part of my reverse pitch focused on why I believed in this company and why I wanted to participate in the investment. Specifically, my intention in this section was to communicate to the entrepreneur that we understood the company, the space, and the opportunity that was possible.
I wish I could post in more depth about this part of the pitch, but for confidentiality purposes I won’t share these slides here at the moment (maybe if we participate in the round!).
I broke apart my presentation into three areas about the company and our understanding of each:
- The Product
- The Team
- The Vision / The Market
Part Two of My Reverse Pitch
The second part of the deck focused on why the entrepreneur should work with FundersClub. With some minor edits, here are the slides and explanations.
Title Slide (self explanatory, came before Part 1)
FundersClub Team Slide
The “We have swag” bullet point is in jest. We have corporate swag (e.g. t-shirts, hoodies, and stickers) and some may say swag in the broader sense personality wise, but that’s not what makes the people at FundersClub special and that’s not what makes FundersClub special.
Our team consists of highly accomplished, phenomenal individuals with unique global backgrounds. The largest group on our team is engineering. We are a software startup ourselves. This gives us a critical edge in understanding and supporting the needs of technology founders.
And though we do receive consistently positive feedback from our members and our founders about our corporate swag (the t-shirts in particular are noted as very soft/comfortable), our company is built around an amazing trusted community for founders and investors.
FundersClub Brand Slide
We target investments in high-growth technology companies. While it’s too early to tell what our returns will be, a number of the companies we helped fund have gone on to raise substantial follow on investment from some of the top venture capital firms in the world. This includes funding rounds led by firms like Andreessen Horowitz, Union Square Ventures, Sequoia Capital, Intel Capital, Spark Capital, and others. We also work with many exceptional founders/companies whose logos are not on this slide.
FundersClub Network Slide
The networks of our community of 7800+ members and founders are both broad and deep. This slide attempted to capture a sample set of such networks; the actual full set of logos would take many slides to fit on. These networks at scale allow us to support entrepreneurs with unique resources, information, and connections.
FundersClub Performance Slide
The comment “We’re #1" is in jest, though we have had a promising start.
Mattermark, an independent data platform that quantifies signals of growth of over 200,000 startups from around the world publishes a Startup Investor Ranking based on the underlying growth/momentum of the startups in an investor’s portfolio. FundersClub at the time of the pitch and at the time of this post ranked at #1 on this list.
Ultimately returns are what count for LPs, it’s open to discussion what the proper methodology should be for such a ranking, and Mattemark CEO, Danielle Morrill, notes in her blog that Mattermark’s benchmarks are not predictive, but we are in good company on the list alongside other notable venture capital firms.
The “Ask” Slide
Again this slide is in jest, but the purpose is to signal that I am serious about investing. Inspiration for this came via Josh Kopelman’s post on First Round Capital’s investment in Aggregate Knowledge.
How Will This End?
It remains to be seen what transpires from this; I obviously hope we can work with this company as investors. Regardless of the outcome, I found the process of reverse pitching the entrepreneur valuable, and I hope the founder did as well (or at least entertaining!).
We’re always looking for more exceptional startups to work with, so please drop me a line (see the Title slide for my e-mail) if you would like to connect.
Boris Silver is Co-Founder and President of FundersClub.
twitter: @borismsilver
essays: www.medium.com/@borismsilver
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