Questions to ask before you work with startup investors

Startup investors ask great questions, so should you

It is natural to be excited when you first launch your startup. But that excitement, that urge to rush ahead, can cause you to make mistakes. One of those mistakes is looking for startup investors before you have everything ironed out. Before you are really ready to approach and take on startup investors.

So, before you start pitching to investors I want you to take the time to ask yourself some really important questions. It is questions like the ones that I am about to share that will not only guide you with investors but also in other decisions that you will make in your business.

Do I really need funding from startup investors?

There are a variety of ways to launch and scale a startup. Some require a lot of capital while other business models work well under bootstrap or lean methodologies.

You need to understand whether or not your model (you do know how your business model will work, right?) is one that is capital intensive or not. For example, if your business is in the telecommunications industry then your model is going to require a lot of equipment and infrastructure. Which is very, very capital intensive. If that is the case then most likely you will need funding from startup investors. On the other hand, in most cases you should be able to scale the company to a certain size before seeking investors if your idea involves a software model.

Sometimes this question is more about asking yourself at what stage you will need outside money. Rather than seeking it right away.

Do I want the responsibility that comes with having startup investors?

Unlike when you use loans to fund the growth of a business, when you give up equity in exchange for capital you are essentially taking on a partner to some extent. Because that investor nows owns a part of your business they have the right to be involved in that business to some extent. So, it is important that you come to grips with the fact that you will someone, or even multiple people, to answer to once you sign on the dotted line. Don’t expect to be able to take an investors money and then they leave you alone.

Another responsibility that comes with working with investors is that you could be the person responsible for losing their investment. Whether that investor is a family member, friend, or someone you have never met it still won’t feel very good if your startup fails and they lose their money. You need to consider how you will feel if that happens. Trust me, it happens more than you might think.

Am I willing to be completely transparent?

I’m not focused on honesty here. But I suppose honesty is a part of it. I’m more focused on whether or not you are being completely transparent in the things that you share with investors.

For example, do you really have five clients already buy the solution or did five clients agree to beta test for you? Because there is a big difference. Are your patents really already issued or are they still pending?

The point here is that you should be utterly transparent in the facts that you share and be prepared to substantiate those claims. Otherwise you are opening yourself up to a potential lawsuit from an investor who feels you committed fraud.

Am I coachable?

Startup investors are usually people who have had some level of success in their lives, whether personally or professionally. Otherwise they wouldn’t have the discretionary income to invest in your idea. That being the case they will likely bring something else to the table besides money. They may have expertise in a certain area of business. They may have contacts that you are going to need.

That is why it is important for startup founders to be willing to be coached by their investors. In fact, you should want an investor who can coach you and add value to the business.

Your turn

Now it is your turn? What other questions can you think of that a startup founder should ask themselves before working with investors?

I only covered a few of the questions that I had in mind. In fact, these questions are part of my upcoming online course on finding and landing startup investors.

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I’m a former C-level banking exec. and 3x startup founder leading a corporate innovation/product team and have helped companies raise over $500M in funding.

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Jonathan Mills Patrick

Jonathan Mills Patrick

I’m a former C-level banking exec. and 3x startup founder leading a corporate innovation/product team and have helped companies raise over $500M in funding.

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