Two Questions You Absolutely Have to Ask When VCs Come Calling

April 29, 2014

Two Questions to Ask VCs | OpenView Blog

The VCs have come calling – what now?

Having investors knocking on your door for the first time can induce a range of emotion. For some founders, inbound interest from a VC (or any institutional investor for that matter) serves as validation of their vision, while others may view it as an unwelcome distraction for an executive team that’s spread too thin as it is. It can also catch you off guard — maybe you hadn’t even been considering raising capital, up to this point — or perhaps it’s been the goal since day one.
Whatever the circumstances, simply entertaining the idea of taking on outside capital means you have new things to consider in terms of how you’re positioning your business. What highlights and metrics will VCs be most impressed with? What will they love seeing, what will they hate seeing, and what could they absolutely care less about? From the very first call there are several dynamics at play, but it is important to remember that this isn’t just an opportunity for a potential investor to vet and get information from you. It is also a huge opportunity for you to walk away with some extremely useful information, as well.

How to Squeeze the Most Value from a Call with a VC: Two Questions to Ask

Here are two questions to ask VCs to get the most out of an introductory call.

1) Why did you reach out to us?

It’s relatively safe to assume that the interest is stemming from at least one of the following factors that they find attractive about your business:

  • the product itself
  • the opportunistic market sector you play in
  • the team you’ve surrounded yourself with

It’s no myth that VCs are looking to invest in people just as much as they are in product, so it is not without question that they like something that you specifically bring to the table. No two firms are the same in terms of investment strategy, so you can also assume that there is likely something unique about your business that aligns with the firm’s core focus (ex: here at OpenView, we invest in B2B expansion-stage software businesses, so there is already a narrow scope of focus when it comes to prospecting).
Those are all things you can assume, but why not come out and ask the question directly? Identifying the specific reason you are being targeted will not only make the call more productive, it also allows you to get some candid insight from the VC on your market and your approach, and it can help you better understand how outsiders are viewing your business, too. That can be incredibly valuable in informing your go-to-market efforts such as competitive landscaping, market sizing, or messaging within your sales/business development orgs.

2) What other similar investments have you made?

The best way get a high level snapshot of whether it is actually worthwhile to take a call with a VC is by simply taking a look at the previous investments the firm has made. That can provide immediate transparency as to the stage and sector the firm has expertise or preference in.  Again, you can make a lot of assumptions on your own here, but you can get more, better-informed insights if you just put the question out there directly.
Make sure you understand what a typical investment looks like and whether there are any potential conflicts of interest with competitive companies in the portfolio. It makes sense to be skeptical if there is a competitor in the portfolio, but also recognize that an investment in the space indicates a vested interest in the market opportunity.

Bottom Line: An Intro Call with a VC is Not a One-Way Street

You have every right to drill down into the specific reasons they reached out to you, and clarify what the expected outcome of the call is. Don’t feel shy about wanting to understand a number of factors up front. Stage and growth preference, average check size, and hard financial metrics of companies they’ll invest in are all fair game. Remember, they will certainly have questions in return regarding your business model.
If you do determine there could be a mutual fit you’ll also want to inquire about what their diligence process looks like and when you should expect to hear back on diving deeper. At this point, you can reflect on the discussion with your own team and determine if the firm could make a good potential partner at some point down the line.
Getting approached by VCs for the first time is undoubtedly a thought-provoking event in the lifecycle of an early stage startup, but being prepared and having a clearly defined approach to fielding inquiries will enable you to get the most out of every intro call and set the foundation for a finely tuned fundraising strategy moving forward.
While we’re on the topic, what other questions do you have for VCs? Let me know in the comments below.
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Partner Manager

Matt is a Partner Manager at <a href="">Datadog</a>. He was previously an Analyst on OpenView's investment team.