March 4, 2020

|

by: Jonathan Hung

|

Tags: angel investor

|

Categories: Angel Investor, Startup Funding

17 Questions to Ask an Investor

Getting a meeting with an angel investor is never easy unless you’ve got a warm introduction from someone the angel investor respects. Remember, the goal of any encounter with an excellent potential investor is to get to the next meeting right up to the point the investor writes a check. Read more to learn which questions to ask an angel investor.

If you do get a meeting, you need to make the most of it. While the investor should have several questions for you, you need to be proactive and have some inquiries of your own. Afterall if this thing moves forward, then you will be in a REAL relationship with this other individual, and you want to make sure there is a good fit. Not all angel investors are equal. The best are the ones that take an active interest in your company up to the point of meddling. This interest includes making more introductions and being a critical sounding board for your plans during your meeting.

When you do finally score that meeting you don’t want to just expect to field questions from the angel investor, and you want to find an angel investor that is a good fit for you, not just anyone that will write you a check.

Hence, I’ve often been impressed when I meet an entrepreneur and they ask me the right questions. I’ve compiled a list of the top questions you should feel comfortable asking the potential investor in your startup:

Table of Contents

  1. What Attracted You To My Company/Startup?
  2. What Is Your Typical Investment Timeline?
  3. What’s your due diligence process for making investments?
  4. What is the last company you backed, and why?
  5. If things move forward, can you introduce me to some of the CEOs of your portfolio companies?
  6. What is your average check size?
  7. How many more investments do you plan on making this year?
  8. What are your concerns about our business?
  9. Do you see yourself leading our funding round or just participating?
  10. Is there any other decision-maker in the investment process?
  11. Have you invested in a competitor, or are you considering doing so?
  12. What are your success criteria for an exit?
  13. Will you want to take a board director or observer seat?
  14. Do you invest alongside other angel investors to whom we could speak?
  15. What do you see as your post-investment role with the company?
  16. What is the best way to communicate with you?
  17. Would you be available to meet at [pick a time] for a follow-up meeting?
  18. Conclusion

To understand why each one of these questions is essential, let’s take a look at them in more detail. While you might not get a chance to ask all of these questions, you should ask as many as possible!

1. What Attracted You to My Company/Startup?

This inquiry should be one of the questions to ask an angel investor that you always ask without fail. Bringing an angel investor on board with your company is a two-way street. They will be investing money in you, and you will be learning from them. Conversely, the angel investor should have goals that align with your vision. Are they attracted to your idea? Does the angel investor merely want to make a quick buck? Asking this particular question gives you insight into the way they think and if it will be a good fit.

The best angel investors are passionate about your business. They will want you to succeed. They’ll want to guide you to success. If the investor cannot even answer why they are attracted to your business, how do you think they’ll work with you to help you succeed? Asking this question also gives you valuable insight into how others perceive your business. They may be attracted to an aspect that you aren’t expecting!

2. What is your typical investment timeline?

Knowing the typical investment timeline is essential. You want this information for two reasons. First, you need to be engaged in this process. If the angel investor says that it typically takes 2-3 meetings before funding (which is often the case for individual investors), then you should work with the investor to get those meetings finalized and prepare any information you need. Other investors, like micro VC groups, tend to take longer. Either way, you should be working to ensure this process goes smoothly, and you have everything prepared as needed.

The second reason for knowing this timeline is so you can have a rough idea of when you’ll receive a yes or no answer. If you’re looking for money sooner rather than later, you might want to work with investors that will be able to fund you without long delays. You might also have a cost-benefit analysis to do as well. If company X says they can provide you with the necessary funds after 4-6 weeks of meetings and individual Y thinks they can give you a check after 2-3 chats, then perhaps you want to pursue the latter individual more aggressively. This choice would be especially right if you thought they would make a quality board member!

3. What’s your due diligence process for making investments?

Knowing the due diligence process that an angel investor has can help you in a few key ways. It gives you an excellent insight into how the investor thinks and what they bring to the table. Do they check your financials thoroughly, call references, and so on? Or are they more relaxed? Recall that you want an angel investor that will be actively involved with your business. If they are lax on the due diligence, then there is a good chance that they won’t take a hands-on approach with your company either!

You can also prepare adequately for the due diligence if you know the process as well. You can go back from the meeting and work on prepping financial statements, references, etc. to help expedite the investment timeline overall. Instead of waiting for the investor to reach out to you with what they need, you can send it to them.

4. What is the last company you backed, and why?

Learning which companies an angel investor backs and the reasons behind those investments is critical for your success. It helps you gain some insight into their style, why they make the investments that they do, and also help understand which companies they choose to back. If the company has any similarities with your business, you should make sure to highlight those. You can also get a keen sense of how active the angel is in the community with this approach. Backing the last company five years ago is much different than having written the previous check one month ago!

5. If things move forward, can you introduce me to some of the CEOs of your portfolio companies?

Besides the obvious networking benefits of these meeting introductions, they are also an excellent way for you to check references. Much like angel investors and venture capital firms check references for you, you should also do some due diligence with the investor. It’s also a fantastic question because the response you receive can tell you a lot about the person. If they’re reluctant to name names or introduce you, then that is typically a much more negative vibe than an investor that will happily connect you to other people with whom he has worked in the past.

6. What is your average check size?

This inquiry is another one that should be at the top when it comes to the list questions to ask an angel investor. The average check size that an angel investor writes will tell you a lot about them. You’ll know whether or not they invest small sums of money (in which case, maybe they’re going to be less invested in the business), or if they spend more significant amounts and go all in to make them a success. You’ll also know if the average check size is what you want! If you’re looking for $100,000 and the angel responds with $25,000, then perhaps this person isn’t right for your business. Similarly, if they react with $500,000, then, again, maybe the deal won’t work out quite the way you want. You want an average check size that is in line with what you would like!

7. How many more investments do you plan on making this year?

Sometimes angel investors will take meetings with entrepreneurs to get a sense of the company and put it on a “would-like-to-invest-in-the-future” list. The angel investor with whom you are meeting may have already made all the investments they’re going to do for the year. Or, they may be planning on six investments, and you’re the sixth (in which case, they will scrutinize the last one much more than the first ones). Knowing about their investment capacity (and even if they can invest) avoids miscommunications down the road.

The number of investments that an angel will make is inversely proportional to the amount of time they can spend on each company. If an angel makes 12 investments per year, then they won’t be able to spend as much time with your business as if they make three. Pick an angel investor that takes on a reasonable number of investments per year and can spend adequate time with each company!

8. What are your concerns about our business?

Make the most of your meeting by asking someone with experience what potential pitfalls they see for your business. The answer you receive is not only beneficial for your knowledge, but you can ask the follow-up question, “how would you be able to help us address those concerns?” You’re also indicating that you’re open to feedback and respect the opinion of the investor who likely sees hundreds of companies per month! It’s also a fantastic way to see how much due diligence the investor has done before the meeting and how much experience they have in your domain!

9. Do you see yourself leading our funding round or just participating?

Some angel investors prefer to let someone else set the price and terms of the round. They might like to buy in with something like $25,000 for 2% of the company as opposed to coming up with those terms themselves. As such, a fantastic set of questions to ask an angel investor is around the funding terms. This one helps you understand if they can and will be your lead angel investor or if you still need to find another one who will lead the round of funding for you. Again, you and the investor should have this conversation upfront to avoid issues later!

10. Is there any other decision-maker in the investment process?

It’s useful to know if the investor is acting solo or if there are other decision-makers in the process. If there are, then you’ll need to figure out what, if anything, you’ll need to present to them to get them on board with the investment as well. Investments with multiple decision-makers also tend to take a little longer as everyone needs to be on board.

11. Have you invested in a competitor, or are you considering doing so?

If the angel investor has already put money into a competitor or is thinking about doing so, then there’s a potential conflict-of-interest that would make the chance of you receiving an investment from them zero. An angel investor could not help both competing companies. If they say that they have invested in a competitor or that they are doing “research” to figure out the right company in which to invest, you may wish to reconsider moving forward with the process. Your time is spent best with individuals who are interested in your business.

12. What are your success criteria for an exit?

Naturally, the fine details are part of the final contract that you and the investor sign. However, you should ask about the general success criteria for an exit to see if it aligns with yours (and if it is realistic or not). Every angel investor has a different definition of success, and if theirs is incompatible with your business, then that person probably isn’t right for you!

13. Will you want to take a board director or observer seat?

Of the questions to ask an angel investor, this is one of the essential ones. The answer that the investor gives to this question will help you determine how active this person will be with your company once they write the check. Investors that are actively involved will want a seat on your board because they will want to have a say in guiding the company to success. Passive investors will say no to this question.

Generally, you’ll get the best value from investors who want a seat on your board because they’ll pass along their wisdom and guidance in addition to their funds!

14. Do you invest alongside other angel investors to whom we could speak?

It never hurts to ask to speak with other investors with whom the angel works. You can often contact them to provide references. Additionally, you can get their perspectives on your business and discuss some of these questions to ask an angel investor when you meet with them. It also lets you know if the investor is flying solo or if they are working as part of a larger team. You might be able to unlock more capital if you get a commitment from this investor!

15. What do you see as your post-investment role with the company?

The best angel investors will want to take an active role within your company! However, you also probably don’t want someone that will be overbearing. Learn what role the investor expects to have within your business in advance, so you don’t run into issues in later meetings.

You should also consider testing them on any roles that they might have. For example, if they say they can introduce you to groups of people, ask them for specifics. What relationships do they have with them? How would they present you, and so on? You want to bring one or more angel investors on board that has value for the business above and beyond the checks they sign!

16. What is the best way to communicate with you?

Establish a cadence of communication early in the process. You want to get this relationship off to the right start! Some investors like to receive monthly emails detailing the progress, explaining key benefits, and so on. Others can wait for a report every quarter. Finding out what works best for the particular investor will ensure you have an amicable relationship if they choose to fund you. It will also let you make sure that the update cadence they want is compatible with your communication style!

17. Would you be available to meet at [pick a time] for a follow-up chat?

As the last of the questions to ask an angel investor at your first meeting, this one is essential. Assuming everything went well at your meeting and you liked what you heard, ask for a follow-up meeting! Don’t leave things hanging, where both parties are unsure of what to do next. Establish follow-up action items and plan for a time to communicate next. It usually takes 2-3 meetings to get an investor to cut a check anyways, so see if they’d be willing to commit to the next meeting right away!

Conclusion

Asking the right questions will make your meeting the most productive it can be. While each of these questions gets at a different aspect of the investor and how they will interact with you and your startup, they all circle around one central theme: transparency. The best investors are often the ones where you can have upfront discussions and be transparent with one another early on in the process.

Remember, you’re not merely seeking an investor for a check, you’re seeking some of the most influential people for the early stages of your business!