50 Questions Founders Should Ask Themselves About Investors

Giphy, Silicon Valley

I couldn’t believe it. The investor I was supposed to meet was late. During our meeting, it was clear that he hadn’t read the deck I sent.

After the meeting, I decided to dig into the details behind this investor’s fund and investments. It wasn’t clear to me if he had actually closed his fund yet, so he potentially didn’t even have money to invest… On top of that, the company he “exited” seemed to be some type of pretend acqui-hire between friends type of thing… aka, no track record of entrepreneurial success. I hadn’t done enough diligence, and the meeting got me to pause and think.

In the current early stage investing climate, it’s easy to get sucked into the vortex of fundraising distractions; everyone knows someone that you should meet. Founders, more than ever, need to be thoughtful before they pursue or take money from any investors. The best way I’ve found to do that is to ask better questions about who I want to work with and why…

What follows is a list of questions I made for myself to help prevent the nightmarish scenario of having to work with the wrong investor for the next 5–15+ years!

These questions have helped me slow down and think more clearly. It’s my hope that at least one of these questions will help spark an insight or realization that helps you find the perfect investor(s), and avoid the wrong one(s).

1. Why are they doing VC instead of building another company? (Supposedly Jeff Bezos asked Marc Andreessen and Ben Horowitz this when they asked him to be an LP at @a16z)
2. When did they make a decision based on moral principles that caused them to miss out on making a lot of money?
3. As F. Scott Fitzgerald says, “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” Can they do that?
4. The best founders and investors embody a union of character traits that are polar opposites of one another. Do the investors you want to work with seem to embody the coincidentia oppositorum?
5. Why (specifically) are you excited about working with them for the next 5–15 years?
6. Are you prepared to do the work to get to know them well enough to make this decision?
7. How will their expertise, knowledge, and connections specifically help you and the company?
8. What are their goals, and how will your expertise, knowledge, and business specifically and strategically help them achieve their goals?
9. Could you take feedback from this person that is extremely honest, critical, and blunt (while still respecting them)?
10. Have they built and sold a company?
11. Was that company or outcome something you admire, and will the domain knowledge they gained in the process be complementary with what you’re trying to build?
12. What evidence is there that they are willing to bet on who you are (and are becoming) as a person? In other words, are they’re confident that no matter what happens with the business, you’ll figure it out?
13. Are they fundamental or dogmatic in their thinking? Or can they, and do they, regularly change or adjust their beliefs?
14. What personal belief have they changed in the last year or so, and why?
15. What’s the most interesting thing they’ve learned in the last year?
16. The now classic, “what important truth do [they] believe that few people would agree with them on?”
17. Who have they cut out of their life and why?
18. Have they had a job or time in their life where they were humbled? What evidence is there that they can check their ego, roll up their sleeves, chop wood and carry water?
19. What type of questions do they ask you? Are they asking what your childhood was like (a first principles approach to discovering who you are), or are they only focused on the present and what you’re currently making?
20. What proof or evidence have they given that they thoughtfully read through your deck, or are listening to what you’re saying or writing? Plenty of investors haven’t set up proper filters or systems and get mired in a deluge of inbound. Because of this, they have a tendency not to listen on the phone, or read the decks or emails you send. If this is the case, take a note on whether is it because they’re overwhelmed, patronizing, or are you unclear/not selling yourself well?
21. Do they take care of themselves physically and mentally?
22. What addictions do you suspect they have and do they have a substance abuse problem? (I’m serious here- plenty of investors have more than one skeleton in the closet, and even something small like a daily overdose of sugar or caffeine can signify they’ll never be able to lend cognitive capacities to you that aren’t befuddled by adrenaline or a sugar crash.)
23. Are they just looking for stereotypes? Plenty of investors actively look for founders who are hypomanic or borderline psychopaths (my guess is that this is mainly projection).
24. Are they able to maintain a stable and steady romantic relationship? (This is one of the biggest tells to find how people act or behave behind closed doors)
25. Do their actions suggest that they respect you? (Are they late, or have they canceled meetings w/o legitimate explanations?)
26. What portfolio investments have they been the first or lead investor in? (Do they have a track record that shows courage and conviction? Are they lemming like? Do they spray and pray, or do they back the truck up when they have conviction?)
27. Have they had an exit that was more than an aqui-hire? It could be one of their own companies or one of their portfolios.
28. What type of compensation structure is their firm rumored to follow? Do they prefer long term incentives tied to performance? A lower salary with a higher carry (percentage of the upside gains) might help align both of your incentives.
29. Who are their LPs, and are you excited about making these people or institutions more money? If you can’t find that information, do research, or ask them. Understand if they can’t disclose all of them, but you should at least be able to turn up a few. Do you want to work your butt off to generate returns for these LPs?
30. What are the economics of the potential investment they would be making in your company, and what result do you need to generate to make it a success? For example. If they’re investing out of a $1.3B fund, do you have a coherent answer for how your business can return 10–100x their fund size? Or does just thinking about that make you want to throw up?
31. What is their response when you explain to them how you’ll reach your first hundred million or billion in revenue?
32. How well are their other investments in their current or previous fund performing? Are there past or present funds up by a incredible multiple (say, ~7.7x times) that’s better than industry averages? You should want to be on a winning team just as much as they do.
33. How much do they usually invest, and who else do you have to bring into the round to make it easy for them to say yes?
34. What percentage of the companies they fund raise subsequent funding rounds, exit, or IPO? Are they known for making (or being willing to make) extremely large follow on investments in their winners?
35. Do they have investments in portfolio companies that are working on big challenges (AI, human augmentation, preventing war, fighting cancer, education, space, hard science, etc…). Or do they have a lot of vanity investments in Series D rounds of popular unicorns?
36. Ask people they’ve worked with how this particular investor balances helping when needed and leaving the entrepreneur alone when it’s not.
37. What is the philosophy of their boss and the firm they work for? Do their philosophical beliefs and actions align with your own?
38. Do they ever express any of their personal philosophies publicly, especially if it’s different from that of their boss? (You want to make sure they’re not a fundamentalist or drinking too much of the kool aid)
39. Reference Check: Connect with 3 founders of successful companies they’ve invested in, and get their take on the investor.
40. Reference Check: Connect with 3 founders of companies they’ve invested in that have failed, and get their take on the investor.
41. Do their portfolio companies inspire or scare you (in a good way)? Are they important for humanity and society? Or, are most of their investments in things to just amuse humanity to death on the way to extinction?
42. Do they spot serious challenges, opportunities, and perspectives about your business that you haven’t thought about?
43. What are some of their daily habits and rituals?
44. Do they use buzzwords and phrases or substantive ones?
45. Wise men have said that, “the world is made of language.” Or put in another way, the world is malleable, but ultimately, it is made of imagination. Several of the best investors in the world have started to hint that they are only looking for founders who speak in definite future tense. What type of language does the investor you’re pursuing use? Do they make vague, indefinite comments? Or do they make definite, strong statements? Can they speak in definite future tense along with you?
46. Are they willing to trust or defer to your expertise or analysis of a market? Or, do they want a scientific study done by ‘experts’ about each observation, metric, theory, or insight you’ve discovered or generated? The devil’s advocate can be helpful if he wields logic and data, but if he’s a sociopath who can’t handle being wrong… you might want to run!

Giphy, Silicon Valley

47. What type of people do they want to invest in and why?

48. What do they prioritize when investing: markets, tech, ideas, or people?

49. Are they willing to get to know you well enough to gain enough context to invest in you as a person, or make the necessary effort to do (smart) character and reference checks? If not, how can you ever develop a positive working relationship or friendship with them?

50. Who are the five people they seem to spend the most time with? (they’re becoming like those they spend time with — just like you)

Chad Grills is the Founder of The Mission.

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