A guest post by Luka Ivicevic, co-founder of Penta

What? I should ask VCs questions? Shouldn’t they just ask me questions?

Raising VC sucks. The dishonesty, the chase, the emotional rollercoaster—it sucks. Here are 9 questions that all founders should ask VCs before their first meeting.

Why?

  1. It’ll help you understand if the VC is about to waste your time (most VCs waste your time).
  2. You’ll understand who you’re speaking to and if this person is a decision maker or if you’re about to go through the Babel tower to get rejected.
  3. It’ll help you pitch better.

Here are 9 questions in order of relevance that you must ask VCs on your first meeting. Regardless if the person in front of you is an analyst, associate, principal, venture partner, partner or whatever other creative names they give themselves, these questions will help you position yourself better.

1. What do you do at [Insert name here] Ventures?

If it’s an associate or an analyst you’re sitting with the gatekeeper. Your chances of moving past this point to a decision maker are low. To be clear: my team always takes meetings with associates. Because, “you never know.”

2. What’s your sweet spot? How big were your last three investments?

  1. a) Most VCs don’t invest below 1 million. While there are some that focus on seed-stage, most are pre-series A/Series-A, B focused. Ask up front. Find out whether they’ll even consider investing in you. Otherwise, you’re just whoring yourself out.
  1. b) This also tells you how much you should ask for. Always come with different scenarios.

3. Have you ever invested at my stage?

What does “ stage” mean in a VC’s mind?

VCs want to invest when you have some traction, some data and are about to grow quickly. However, some don’t mind coming in a bit earlier if you can prove your team is strong and that you have a good foundation. If you’re pre-product (even if that means testing but not live) pre-revenue find out immediately if they will invest in your stage. Otherwise, it’s a waste.

4. What are the reasons that you would tell me that ‘we’re too early’?

A famous VC excuse is to say at the end of the meeting “you’re too early.” Which really just means: “After your pitch I realized how awful your business is and I’m not interested anymore.” Find out why they would say this before the meeting so that they can’t give a lame “too early” excuse at the end. If they still do, your pitch really did suck.

5. What industry do you focus on? Why?

  1. Smart money vs dumb money. Always go for the smart money.
  2. Understand their passion. What drives them? It may not be what drives you = diverging visions and possible problems on the board.
  3. If they don’t focus on your industry, they have no clue what you do and they’re just doing market research.

6. How do you make decisions?

Some funds require that all partners agree. Others require that the majority agree. Few allow partners to make their own decisions. If you’re sitting with the decision maker (partner), you’re sitting with gold. This will help you better understand your chances, the timeline of execution as well as the power the person holds. This can be a massive time saver.

7. How big is the fund?

VCs have investors. They need to triple the fund by the end of the fund’s lifetime. The VC will invest in 100 startups. Getting a 20% stake in each. Hoping two or three exit at a billion. And voila, their business model.*

So what?

Well, they’ll expect you to hit a billion as well. Depending on your ambitions and market, that may not be viable. Depending on the size of the fund you can see what type of pressures you’ll be up against. Some of which can kill you. Knowing the size of the VC’s fund gives you an idea of how the relationship will play out.

*For those unaware, a partner at a VC gets a budget of 2% of the size of the fund for her staff, salary, office, etc. and +/- 20% of an exit.

8. What percentage of your fund is invested?

Some VCs have several funds. They also have a due date by which they have to invest it all. Don’t forget, VCs are human. Depending on the stage of the fund, decisions can be made rationally or completely irrationallyBut this can also hurt you. Because if it’s the end of the fund, they’re closing their last few deals and simultaneously raising money for their next fund. Ironically, they become the ones pitching to investors, which leaves less time for you. This can be an advantage or a nightmare.

9. Do you have any companies that overlap with us in your portfolio?

Do research before the meeting. The VC should have companies that do similar things to you, otherwise you’re running after stupid money (stupid money works, but smart money goes a long way). But still ask. Surprisingly, most VCs are ethical. They’ll give you a disclaimer at the beginning of the meeting that they have competitors in their portfolio company. If they lie that will stain their reputation, so most won’t. But some will keep quiet. So ask.  And if they do have competing companies, this is when you can leave out the bits and pieces that make you different. But chances are your “difference” is irrelevant.

Lastly, if they do have a conflicting company, they’re doing market research/wasting your time.

 

Luka Ivicevic is a cofounder and Head of Growth at Penta Bank in Berlin, Germany. You can follow him at @lukaivicev