Key Questions Founders Should

Ask Investors

Adam QuintonFounder and CEOLucas Point Ventures

Glenn McCraeChief Strategy OfficerEGFS

#FounderQuestions

About Us

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Getting the VC Meeting

• Warm introductions• Tools

- Executive Summary- Pitch Deck

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Basic Fit – Are They into You?

• What is the technology/market focus of the fund?

• What stage do they focus on?

• Do they invest in your geography?

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Agenda

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1. • Reverse Due Diligence

Background

2. • Key Things You Need to Know

3. • When to Say “No!”

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Why Reverse Due Diligence? You Owe It to Yourself

• It’s your company, your team, your life!

• So put as much thought into due diligence on investors as they do on you

• YES – you can and should ask questions

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1. Reverse Due Diligence Background

• What You Are Getting Into When You Take Professional Money

• Doing Your Research

• Your Goals in Assessing Investors

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What You are Getting Into When You Take Professional Money

“The day you raise money from a venture investor, you’ve also just agreed to their business model”

Steve Blank: Fund Raising is a Means not an End

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VCs are Demanding but (Mostly) Fair

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Doing Your Research

• Study websites like crunchbase, angellist, cbinsights and talk to investees

• Being Prepared:– Allows you to focus on direct questions

that are not in the public domain or on issues that are unclear

– Makes you look smart, prepared and professional when you interact with VCs

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Your Goals in Assessing Investors

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1. Understand how a VC operates, including how they make money

2. Work out whether the way they operate aligns to help or hinder you and your company

3. Confirm if these are people you want to partner with ... for a LONG time

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2. Key Things You Need to Know

• Right From The Start– Are We Talking Serious $$$– Ownership/Deal Philosophy

• Once Things Are Moving Along– Investment Process– How Things Work Post Investment

• When You Are Closer to the Finish Line– Milestones– Winners and Losers

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Are We Talking Serious $$$

• How big is the fund they are investing from? => Are you an option or an investment?

• How old is the fund they are investing from?

• How many checks do they write a year?

• What is their typical check size?

• How much dry powder/reserves do they keep per investee?

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Ownership/Deal Philosophy

• Do they primarily seek to lead rounds? • What is their typical target ownership %?• How many seed rounds have they done and

for what % of them:a) Did they lead the subsequent Ab) Follow on in the Ac) Not participate in the A

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Investment Process

• What is the typical time from first contact to close?

• What are their key due diligence requirements?

• Who green lights investments?

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How Things WorkPost Investment

• What do they see as their key value add?

• Do they stress that they are “hands on”?

• Which Partner will be involved? • What is the fund’s policy on

governance/Board Seats?• Do you have a say in which member

of the fund gets the Board seat?• What is their expectation re exit

timing?11/13/14

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Milestones

• What milestones will they track to determine if they would lead our Series A?

• What happens if you don’t hit those?

• What happens if you are close but need more runway?

• How many times have they participated in a Bridge Round?

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Winners and Losers

• What have their returns been? • Ask them to name their main successes and

failures• How many exits in your space in the past three

years and to whom?• How did they handle companies that struggled?• Ask for 3 CEOs of investee companies to talk to

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3. When to Say No

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When to Say No• The investor is a jerk (not the same as tough)• Negotiations get dirty • They fail the gut test

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Wrap Up

1. Reverse Due Diligence Background- You know why it matters and it’s OK to ask

2. What You Need to Know- Difference questions at different stages

3. When to say “No”- It just doesn’t feel right

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Final Caveat

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Thank You and Questions?

@adamquintonadam@lucaspointventures.comwww.lucaspointventures.comwww.analysttoangel.com

contact@earlygrowthfinancialservices.comwww.earlygrowthfinancialservices.com

@earlygrowthfs415-234-3437

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