6 questions to ask potential investors before your next funding round

Have you ever thought about raising capital to help grow your startup business? Raising capital is one of the most stressful things a small business owner will have to do. You might think that asking potential investors for money is just as difficult. But it doesn’t have to be. Gathering the best information before you approach your potential investors is one of the keys to succeeding at raising capital in your venture. Here is a list of questions that you should ask yourself and any potential investor before your first meeting with them.

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What is their investment criteria?

Finding the right investor often means determining if you will be a good fit for the investor. The best way to determine this is to ask them what their investment criteria is. Angel investors and venture capital funds will invest different quantums at different funding stages and have very different criteria for approaching investments. For example, early-stage angels might invest because they believe in the entrepreneur whereas institutional investors will invest if the business model, business plan, intellectual property defensibility and business metrics meet their requirements. It is also important to determine if they co-invest with other investors or require you to identify a lead investor who will set the valuation.

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What is their investment decision making process?

The investment decision process and timelines of an investor need to be compatible with your own fundraising process which is why it is important to understand it as early as possible in your investor meetings. Each investor will have their own investment and due diligence process so understanding these early on can help you prepare. One way you can streamline the process is by managing donor relationships with a tool, such as a CRM.

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Have they invested in your space and your stage before?

Investors invest in different types of businesses and at different stages which can make them a good or bad fit for your business. For example, if you operate in a niche market, identifying specialist investors with deep domain expertise can be extremely valuable. Investors investing at an early-stage are also likely to have insights which can help new companies reach product market fit faster.

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How do they help portfolio companies?

Whilst investors have no obligation to help portfolio companies outside of providing investment capital, value add investors can be extremely valuable for entrepreneurs. Ask potential investors how they have helped portfolio companies in the past and in particular when things have not gone to plan.

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At what stage is the fund in their fund lifecycle?

Venture capitalists invest out of fund vintages which only have capacity for a certain amount of companies and over a certain amount of time. Knowing where a fund is in their lifecycle will help you determine if they investors will have capacity to support you in your journey.

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Do they invest at the next round?

Being able to raise capital in future rounds is important for the success of startups as they progress and reach milestones. Having an investor which can invest in the next round will also make your business safer and more attractive for incoming investors.

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Once you have asked these important questions, you should be able to determine if an investor will be a good fit for your next financing round. Whilst institutional investors won't typically sign NDAs until they look at your dataroom, it is important you protect your business' confidential information and intellectual property through other legal means such as employment contracts, consultancy agreements and non-disclosure agreement with potential partners. 

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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.