Questions Entrepreneurs Should Be Asking the Investor

Not only do entrepreneurs need to be able to answer questions for prospective investors, they need to be able to ask questions to investors in search for the right fit. Some of the basic questions that entrepreneurs ask are:

• Tell us what you think of our strategy, how we size up the competition, and our game plan. What have we missed? Whom have we missed?

• Are there competitors we have overlooked? How are we vulnerable and how do we compete?

• How would you change the way we are thinking about the business and planning to seize the opportunity?

• Is our team as strong as would like? How would you improve this and when?

• Give us a sense of what you feel would be fair range of value for our company if you invested $ _______?

These are some good questions but I also feel like there are three other non-traditional questions that you should ask an investor who is looking to buy into your company. What types of questions and approaches should you use when finding the right investor? The three questions are below.

The first question you should ask is, “How many exits have you had?” Venture Capitalists are typically all about the exit or sale of a company and this question shows how good they are as an investor. While building a company that lasts and produces positive cash flows is great for the business owner, the partners in a venture firm only get paid when the company sells. So the question is – how many times have you been successful as an investor? Believe it or not, many investors will start to sidestep this issue because frankly, it’s hard to be successful as an investor. Don’t let them off the hook.” This is an interesting buzz question because it is actually asking how smart they are in their decisions and turns the table on them by putting them on the spot.

The second question is “Where have you been successful?” This is a two-part question. It’s not just about whether or not the investor has been successful in their career but whether or not they have been successful at what you’re doing (more particularly, your industry). The difference is not only the quality of the firm, but how well they understand your industry or business. This is really digging into how successful they are because an ideal investor should have business success. The investment company should know the paths to success and how to get there so asking them for areas they have been successful in should help determine if they are the right fit.

The last questions is “What do you bring to the table?’ A good investor has very obvious connections to customers, partners and media outlets. They will tell you exactly where they are connected. An investor you want to avoid will give you general answers like “we are very connected” yet won’t tell you exactly who they are connected to and how. This will also show how serious you are about the deal and that you are sizing them up just as much as they are you. In finding a partnership that will last, being honest with investors will build a solid relationship and find someone who will help guide your business towards success.

I hope these three questions will help any fellow entrepreneurs out there who are looking for funding and visit our website (www.cbsplans.com) for more discussions and start-up help!

Don Pleger
Owner,Coastal Business Strategies LLC
www.cbsplans.com
910-CBS-9010