Questions Entrepreneurs Should Ask Investors

Every startup needs investors to ensure that its business is a lucrative one. There are two kinds of investors; value add investors and capital add investors. Value add investors are those who not only bring an infusion of money into the company but also add value to the overall worth of your startup. On the other hand, capital add investors are those who are only interested in putting their money’s worth into the company.

Before you partner with an investor of either kind, it is important to understand what kind of a relationship you’re getting into and what they expect from you. To get a clarity on just that, here are a couple of questions you could ask your investors before jumping into a permanent relationship.

1. What kind of a relationship are you looking at? 

Investors decide their relationship with your company depending on how long they want the deal to last for. Depending on the kind of money they are investing, they either are looking at placing one of their own members in your team or they look at having a say in your day to day work. This is one of the first things you should ask your potential investor in order to get a clear idea of your next step as well.

2. What is your investment criteria? 

Building a startup is a process. When you are going to a potential investor, it is important to understand the kind of criteria the investor is looking at before they decide. Don’t promise too much to the investors because they look at delivery and if they don’t get what they expect, then you’re in quite a bit of trouble. So before you talk to them about something long term, lay out your plan for the next five years and ask them for their investment guidelines.

3. Are you planning on taking a personal interest in the company?

When it comes to a capital add on investor, they usually don’t expect a seat on your board. However, if it is a value add on investor, they expect a board seat. Once that happens, you need to ask them how invested they are in your company and whether they would want to be personally invested in the startup or not. Once you understand that, then you can figure out if you want to offer them a seat on your board or not.

4. What is your investenting capacity 

While it may not seem like it, investors don’t have a finite investment capital on hand with them. Ask them how much they are ready to invest and for how long they want to invest. Once you figure that out, then you know where they stand. Before they tell you the answer themselves, it is important to do your own research so you know you aren’t being fooled.

5. What is your investment process and how long will it take? 

Every investor has a process. Some people like investing in different fragments. Either they give you the whole bulk at a time or in parts. Depending on the kind of future you’re looking for your startup, get your investment plans in order. Also, make sure you ask your investor about how long they will take to invest and when the deal will close.