32 Questions Founders Should Ask Investors

Insights from a Founder turned VC

My first experience fundraising was raising a seed round for my first company, Asseta, following Y-Combinator’s demo day in 2013. YC did a good job preparing us for the process, but it was still a steep learning curve. I learned some key lessons like not starting the process with your most promising potential investors and in order to avoid the whole team getting distracted, have only one person work on fundraising. By the time we raised our next round 2 years later, I felt much more confident. However, now that I’ve switched to the “other side of the table” by becoming an investor at Prime Movers Lab, I have a whole new appreciation for how founders should navigate the process. As a result, I put together this list of questions that I wish I had known to ask when I was raising money.

Like any sales process, the critical first step is qualifying your target. You want to figure out as quickly as possible if it’s a good mutual fit and understand their decision-making process. As a founder, you need to optimize around speed to completion because fundraising is a massive distraction from building your company. However, there are many reasons why a VC will spend time with you even if they won’t invest in this round; they want to develop a relationship for a future round, it’s an associate who needs to speak with X founders/week, they are mapping out all the companies in a sector, etc. You might decide that it’s still worth building a relationship with an investor who can’t invest in this round but you want that to be your fully-informed decision.

I’m not suggesting you ask all of these on the first call, but this is an outline of the information you need to gather to properly “qualify” an investor. Get them answered over time and try to figure out as much as you can beforehand by researching online or asking one of their portfolio companies.

Mutual Fit

The outcome here is to figure out if your company meets their investment criteria and if they offer what you’re looking for.

• What is your investment thesis and does our company fit the thesis?
• Are you a generalist fund or are you focused on certain sectors?
• What rounds are you focused on (pre-seed, seed, A, B, etc.)?
• Do you lead rounds, fill-out rounds/co-invest, or both? (It’s much harder to secure a lead investor so you should focus on them initially. Plus most leads already have a cohort of follow-on investors that they’ll send your way. You can find this information on Crunchbase or Pitchbook.)
• What is your typical investment size?
• Do you have any prior investments in our space?
• What’s your policy on investing in competing companies?
• Do you have an equity ownership minimum for the round?
• Will you do SAFEs/Notes or only priced rounds?

Before you start fundraising, figure out the top 3 things you want out of your investors (i.e. helping raise your next round, recruiting executives, mentorship, etc.)

• How do you help your companies raise their next round?
• Which investors typically lead the next rounds for your portfolio companies?
• What in-house services do you offer your portfolio companies?
• What do you think makes a good board member?
• How often do you speak with your portfolio companies?
• What are some recent examples of how you’ve supported your portfolio companies?

Hard times will reveal true friends. It’s easy to get along when things are going great but you want to understand how the investor will act and support you when times are tough.

If the sky that we look upon
Should tumble and fall
Or the mountain should crumble to the sea
I won’t cry, I won’t cry
No, I won’t shed a tear
Just as long as you stand, stand by me

Ben E. King, Stand by Me

• What’s an example of how you went above and beyond to support a portfolio company that was in a difficult situation?
• Have you invested bridge capital in your portfolio companies to help them reach their next round? What’s your criteria for a bridge investment?
• Can you provide an example of how you handled an investment that failed?
• When do you think it’s appropriate to advocate for bringing in a new CEO to replace one of the founders?

Decision Making Process

The outcome here is to understand how they make investment decisions and their current investing status. It’s also critical to figure out if the person you’re speaking with is capable of leading an investment. Titles can vary firm to firm but this post is a good starting point.

• (If you’re not speaking to someone who can lead an investment) When would a GP get involved in the process?
• How long does their diligence process normally take?
• What are the key steps in your process?
• Who will you need to speak with to make a decision? (Employees, customers, prior investors, etc.)
• Have you made an investment before without an in-person meeting?
• Does your partnership use a consensus decision making model? If not, what is your decision making structure?

Their investing status will largely depend on where they are in their fund lifecycle. For example, you might be speaking with a “zombie fund” that is having difficulty raising their next fund and doesn’t have any capital to invest. These can be sensitive questions so it’s important to ask them tactfully.

• What fund are you currently investing out of?
• What’s the fund size?
• When was it raised?
• When was the last investment you closed on?
• How many investments have you done in the past 3 months?
• How many do you plan on doing in the next 3 months?
• How much of the fund do you reserve for future rounds and how much of that is remaining?

Building Relationships

Finally, I suggest you start building relationships with potential lead investors and start qualifying them 6–12 months before you start fundraising. Starting from a blank slate is extremely difficult and a little prep work ahead of time can go a long way. The most efficient, low-touch way to do this is to have an introductory conversation and then sign them up for monthly or quarterly update emails. Make sure to include someone that can lead the future investment, not just an associate or principal. This was a tactic suggested to us by YC but I underestimated how effective it is. Investors will generally read these emails and you will be priming them for the fundraising conversation. They will grow more familiar with you and, assuming you are making progress, it demonstrates your ability to execute. This will greatly speed up the fundraising process and might even lead an investor to proactively reach out to preempt your next round. I suggest doing this for investors that pass as well.

Let me know what you think is missing and I’ll make a follow-up post with the best suggestions I receive!

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in seed-stage companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation and computing

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