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Financing March 19, 2021

Due diligence turned around: 7 questions to ask an investor

Google around and you’ll find an amazing amount of information on what questions a VC will ask to evaluate you. But let’s turn it around! Here are questions your investor should be ready to answer well if they’re a good fit for you.

Some business angels and most venture capital firms take an active role in running the startups they invest in. So, it’s important to make sure you’re a great fit for each other and agree on a strategic way forward.

Sometimes, the best option is just to take the money while it’s on the table, but if you have the luxury of choosing what investor/s to align yourself with, here are some great questions to ask them to learn who is the best fit for you and your company.

1. What experiences from your previous investments are most relevant to our company?

This question should give you information about the investor’s track record and if they have made investments in areas that are relevant to you.

2. How do you help the companies you invest in?

It’s important to look beyond the money and learn about what added value the investor will contribute with. Ask for specific examples that involves startups the investor has previously backed.

3. How much do you set aside for follow-on investments? For how many financing rounds do you typically follow-on?

This question should give you insights on the depth of the investor’s pockets and how they can support you in terms of funding over time.

4. When this company is worth $XB and we look back, what path do you think the company will have taken to get there?

This question will give you a sense of whether the investor fits in and shares the same vision for the company as you do. The same way a team shares the dreams of the founder/s, investors should, too. 

5. What’s your view of the industry sector we’re in?

The answer to this question will help you to better understand how the investor sees the competition in your field, how to navigate the sector, and how to think about its future. If the investor shows remarkable knowledge of your market, he or she could potentially be a great resource for your startup.

6. Who are some of the founders you have backed that I could talk to?

You don’t need to connect with the references, but it could be a good idea to ask and see what the answer is. Great investors will have great reviews, and not so great investors will be reluctant to supply you with names.

7. Are you interested in potentially investing in my company, and if so, what are the next steps?

Before the end of the meeting, make sure you ask this question. It will help you understand where you stand with the investor. There are so called “soft no’s” when the investor is vague. For example, if you get “keep me posted”, then you can assume he or she is not interested at this time. But, if the investor wants to set up a follow-up meeting or a call, this means there is interest.

Do you want more questions?

Download an additional “60 questions to ask VCs during the first meeting to assess fit”.

While they are aimed at VCs, many can easily be adjusted for business angels as well.