10 Best Questions To Ask Venture Capitalists Amid An Uncertain Market
July 19, 2022
The dominating force in the market right now is uncertainty. Inflation, wars, climate change, recessions—we’ve written before about how global changes and economic roller coasters require businesses to find new strategies to achieve high growth amid investment anxiety.
Nowhere is that anxiety more palpable than in the tech industry—particularly for startups. Budgets are tightening, investment capital isn’t flowing as freely, and rather than sprouting and expanding, startups are sadly laying people off.
In this economy, how can founders get fundraising in early stages of growth? One way is making sure you’re prepared to engage with venture capitalists in this new economic ecosystem by asking them the right questions.
To gain some insights, we asked six VCs for their thoughts on how founders can successfully interact with investors. They gave us their recommendations for:
- What to ask VC firms;
- The most memorable questions they’ve personally been asked; and
- Plenty of other tips from their years of experience.
Must-ask questions to ask for VC firms
When pitching to a VC, you don’t get much face-to-face time, so making the most of every opportunity is key. Here are four venture capital networking questions that came up repeatedly from our guests. Consider using them as questions to ask a VC mentor, or directly to an interested VC themselves.
1. How do you act when things aren’t going according to plan?
Nick Adams, managing partner at Differential VC, put it best when he told us that “not everything is ‘up and to the right’ when you’re running a startup.” He said when that happens, investors can either help ease the issues, do nothing, or potentially step in and make things worse.
Will your VC be there in the trenches with you, or will they step back when necessary and not throw gas on the fire? Knowing what to expect of your potential VC can make the road map clearer for both of you.
2. Can you introduce me to a founder where things didn’t go well?
Even if your VC says they handle themselves well when things go sour, the truth is more complex. Talking to businesses they invested in that didn’t succeed reveals who the VC really is when things don’t work out.
Hopefully, the VC will present some examples on their own, which shows that they handled themselves well in those situations. The ideal is to see that they preserved the relationship despite the less-than-ideal outcome.
3. Why are you interested in my business?
Ricky Pelletier, an investment team partner at our own OpenView, put it simply when he said this question is a “good gut check to see if they have spent any time at all thinking about why they are having this conversation.”
No matter how enticing the opportunity, a VC who sees your business as nothing more than dollar signs will not be beneficial in the long run. Instead, you want to make sure they have experience—if not expertise—in your industry, so they can better provide for your needs.
Not only that, but if they have invested in others within your field, those companies can also act as a support system.
4. Will you join my board?
The true sign of a VC’s support isn’t how much money they’re willing to invest, but how much of their time and reputation they’re willing to invest. Large infusions of capital without assurances that the VC wants to be a part of the team should make any startup wary.
That’s not to say that passive investors are worse than active ones, but it’s important to understand what kind of guidance will be available to you after the check has been written.
Questions that made a memorable impact on VCs
If you want to dig deeper with your potential investor, these are some questions that hit the VCs we spoke with hard enough to stay with them to this day.
5. Would you buy this product? If not, tell us why.
This was a question posed to Yousuf Khan, partner at Ridge Ventures. On the surface it’s a simple question, but it reveals so much about the VC. In particular, their knowledge about the product, their honest view of its future, and their ability to be candid with you from the start.
6. Why do you think my business will fail?
In a similar vein to the last one, sometimes asking a negative question can give VCs a chance to shine a spotlight on issues you have never considered before.
7. What’s the worst thing that could happen if you invest? Now compare that to the best thing that could happen.
This was a risky question provided by Brian Schechter, partner at Primary Ventures. It was asked at the right moment without desperation, but still a delicate question nonetheless. Asking these two questions allowed the founder to explain their grand vision anew, though perhaps tread carefully when bringing this up.
8. What’s your vision for our company?
Asking this question ensures that you and your VC can be aligned from the start. It also encourages VCs to reveal insights regarding businesses similar to yours that grew in surprising ways.
9. What made you happiest today?
A question that, again, based on the timing, can cultivate honesty and personal connection between a founder and a VC.
10. What percentage of your investments go to female/underrepresented founders?
This kind of question shows strength and awareness on the part of the founder. When the VC was asked this question, he saw it as a positive signal about the direction of the industry.
Pro tips for evaluating VC firms
Four final tips from the venture capital experts for when you’re still in the early stages of asking questions, in order to achieve your high growth potential.
1. VCs will be vetting you, so vet them right back.
Nicole DeTommaso, senior associate at Harlem Capital, highlighted that “investors are like employees you can’t fire, so making sure you have a good working relationship with the VCs is critical.”
Some items to keep in mind when evaluating them that Nicole suggested are:
- Brand reputation
- Industry expertise
- Portfolio company synergies
- Track record
- Team experience
- Lead partner reputation
2. Stay one step ahead.
Don’t wait for the VC to give you their cherry-picked references. Do your research on them beforehand and ask for specific ones. Additionally, don’t wait to be surprised by the firm sending someone you’ve never met to join your board. It certainly helps to meet the individual in advance.
Try to get the clearest view of who you will be working with, as people can often gloss over their less appealing aspects when trying to win a deal.
3. Brand matters, but it’s not everything.
Eric Paley, managing partner at Founder Collective, recommended researching VCs by looking up their profiles on Crunchbase, reading their blog posts, and listening to their interviews on podcasts.
But he also warned against getting starry-eyed by firms with a large social media presence. Do your due diligence, and make sure that these VCs stay true to their brand values and missions.
4. Listen to your gut.
Be sure to think about your relationship with the VC over the long term, and not just up to getting the handshake. Do your instincts tell you that this is going to be someone you can call when things are going badly?
At the end of the day it’s your call. Remember, don’t be afraid to politely decline if you feel the relationship isn’t going to work for you.
Going further with additional resources
While the market may be uncertain now, some advice will always stay evergreen. Here are some articles from a few years ago with more questions and answers from VCs.