5 Questions to Ask an Investor & 3 Tips When Doing So
By Carlos Cashman, Founding Partner and Co-CEO of OrionCKB
Finding the right investor can be crucial depending on your business. You might be the type of entrepreneur who knows what you need, where you’re going, not to mention you have the contacts, and all you really need is cash.
Too often, all you get is just the cash — when in reality, you should expect and benefit from a lot more. The worst part of that is that you may not even know what you’re missing.
That’s why a good investor can mean the difference between success and failure in a business. Here are the questions to ask investors and what to remember when you do.
WHAT TO REMEMBER
1. Planning makes it happen
Think about the questions you want to ask before you go in. Many entrepreneurs never do this because they assume it’s all about them talking and answering the investor’s questions. But you must give thought to what is important to you before you go speak to any investor.
2. Don’t be cocky
I would caution that you don’t sound haughty when you speak with investors. As an entrepreneur asking someone to invest in you, don’t forget that you’re still the supplicant. Even if your business is growing massively and lots of people want to invest, it’s just not cool to lord that over anyone.
3. This is a small community
Remember that this is a long game. You will either run into these people or those who know them again and again. Therefore, you don’t want to have a crappy reputation out there as a result of being too cocky in the past.
WHAT TO ASK
1. Never ask for an NDA
I always say, in the U.S., do not ask for an NDA to be signed. No professional investor, whether angel or venture fund, will sign one. Asking for it makes you look like you don’t know what you’re doing.
2. Why do you want to fund my business?
This is a question I almost never hear asked, but it is extremely important. Their answer will tell you more about the investor, their thought process, and what they think of you and your idea.
3. Tell me about a similar business to ours that you invested in and how you helped it succeed.
Asking a question like this shows how much involvement you’ll get with this specific investor. Having a hands-on investor can end up saving your business.
For example, in a previous business, we had an investor with an incredible number of deals under his belt. We rarely asked him for much, but when we were taking in a second, much larger investment, we asked him to review the documents for us.
Though we had originally agreed with the second investors that they would not have blocking rights on any future deals, they had still slipped in some clauses to that effect without overtly stating it. Had we not asked for our original investor to review the documents, we wouldn’t have seen those clauses.
This ended up saving us again a year later when we did a great and beneficial deal for the entire company that would have originally been blocked had those clauses stayed in.
4. How do you like to interact with your portfolio companies?
This is another key question that can guide you with your expectations of the investor’s involvement.
Some investors may honestly tell you they are too busy and only want to hear when you make them money. Others may have more time or want to be more involved. Either way, you need to take their needs into account.
This is part of why taking investment is challenging. You need to treat your investors like customers.
5. Be specific with investors about your potential support requests & needs
Whether they are full-time investors or not, they’re busy. Whenever you reach out to investors, it should always be for very specific asks. You must give them a clear path to know whether they can help you or not, and exactly how they can do it.
The best way to do this is to create regular interactions around very specific to-dos. This keeps them involved, engaged, and allows you to get the best out of them that you can.
I know at the end of the day, it can feel like begging for cash and you’d be happy to take it from anyone. But if your plan and team are strong enough, that shouldn’t be an issue (and if it isn’t, then you have other problems). Go in prepared with these questions and tips, and you’ll find the best investor for your business and its needs.
This post was originally published on VentureFizz’s blog.
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