The wrong investor can really traumatize a startup’s growth trajectory. Stupid questions, micro-managing/backs-seat driving, pig-headed insistence on the wrong strategy, forcing bad executives on the company, halitosis - it’s a pretty long list. If you are a startup founder about to take on venture capital financing you should want to know everything you can about your funding venture capitalist prior to accepting an investment. One of the most basic tests you want to conduct is to speak with some of the other founders who have worked with the VC. This isn’t that hard - most VCs will expect this question.
Ask for introductions to founders who have taken capital from the venture capitalist
You’ll want to have an honest, founder-a-founder conversation. Your goal is to make sure that they venture capitalist is someone who you want intimately involved with your company for the next five+ years. Are they trustworthy, do they actively try to help the business, do they listen well, are they approachable and very importantly, are they NOT jerks.
Prasad has begun this phase of the fund raising process. I’m hoping he will have some insights to share on some of the conversations that he’s started to have. However, I think the basic questions that every founder should want to be able to ask other people who have taken the investor’s money are:
- How responsive is the investor
- What help, beyond financial, do they provide
- How involved do they get with your business - try to keep this open ended so you don’t lead the other founder to the answer you want to hear. One founders “very helpful” could be another’s ”smothering.”
- Do they prepare for board meetings
- Do they make helpful introductions (customers, potential members of the team, other funding sources)
- Have they been transparent with their time frame to exit
- If you had to do it all over again, would you accept money from this investor
I am sure that other people have had successful conversations like this in the past and I’d love to hear what was asked and what was learned!
