Important questions investors must ask a startup founder

By Raaghav G R

Posted on August 21, 2017

 

Investing in a startup is a very risky business indeed. Perhaps, this is what makes the profession of venture capitalists a relatively lonely profession. If investors are not careful before investing in a startup, they would be left with nothing but stomach burns and financial loss. This is why investors must know the startup/s he/she is investing in very well and must ask these important questions to the startup’s/startups’ founder/s before investing in the startup: Read more on Investments

 

1. Why is your team the best to back? Investors may be able to provide startup founders with some financial and business advice but ultimately, it’s the startup’s core team which does the business for the startup and gives it revenue and profit. Thereby, it is essential that all the members of the startup’s team are aligned with the startup’s goals and possess the required skill sets to take the startup forward. There must be strong bonding between the members of the startup’s team and they must work collaboratively to achieve the startup’s goals.
2. What skill sets is your team currently lacking and how do you plan to bridge the gap? It is not always that the members of the startup’s team possess all the required skill sets to generate revenue for the startup. Some skills of the team members may need to be refined and sometimes new skill sets may need to be taught. Therefore, it is up to the startup’s founder or team lead (if they have one) to devise a plan to refine the skill sets of some team members or to teach new skill sets to some team members to generate revenue for the startup. Everything must be done on time to ensure good productivity.
3. How much and what kind of guidance do you expect from your investors? Generally, a startup’s founder must know the business he/she has ventured into thoroughly before founding a startup but in some cases startup founders go by opportunity and only have a brief idea about the business they have ventured into. If that is the case, investors must ensure that they are in a position to guide the startup’s founder/s in all aspects before they invest in the startup.
4. Who is your customer? Most businesses in the world either manufacture products or deliver some services to Therefore, a thorough understanding of customers’ mentality, likes and dislikes, demand for a product, etcetera is required to successfully run a business. Investors must judge if the startup’s founder/s has/have a good knowledge of his/her/their customers/audience before investing in the startup. Constant strides have to be made to improve product/service quality to ensure greater customer satisfaction and thereby more business and revenue for the startup.
5. Do you have a vision for the startup? Some founders may found a startup just to sell it off for a profit to a big corporate in the near future. Such kind of entrepreneurship must be discouraged because if it is allowed to continue, then entrepreneurship will become just like any other job for people. Investors must ensure that startup founders have a long term and feasible goal for the startup before investing.
6. Are your company’s logo, motto, product/s and service/s copy protected? Investors must ensure that the startup’s logo, motto, product/s and/or service/s are copy protected before investing to avoid theft of intellectual property.
7. Who are your competitors and what are their strengths and weaknesses? Whether in a battlefield or in business, knowing your enemy/competitor is half the battle won! If startup founders know the strengths and weaknesses of their competitors thoroughly and have a good plan to overcome them, they are sure to succeed in their business. Investors must ensure that startup founders know their business well and have a comprehensive plan to overtake their competitors and increase their market share and/or business before investing in the startup.
8. How will your business impact the society and at what scale? Generally, a business will be successful only if it impacts the society in a big and good way i.e., it should provide useful products and/or services to the society. Investors must ensure that the product/s or service/s the startup is providing to the society is in demand and will continue to be so for the foreseeable future before investing in the startup. Startups that plan to employ a lot of people, also usually get good concessions and exemptions (like tax exemptions) from the government.
9. Describe your revenue model and cost economics. Investors must have a clear idea of how the startup generates revenue and how much are its operational and miscellaneous costs and unit economics to achieve good economies of scale or growth and cost optimization and profit maximization. The startup must ultimately earn more than it spends.
10. Are there clean ways to exit the startup? Every investor invests in a startup with the hope of getting substantial returns. Only if the startup turns profitable will it be able to repay investors. If the startup does not turn out to be profitable then investors must ensure that the startup can be sold to big corporates for a profit or that they can trade their stakes in the startup for a smaller but profitable stake in a large corporate. Startup founders must be asked to quote real life examples by investors, where startups in their sector have been sold to big corporates for a profit to avoid disappointments and stomach burns in case the startup does not turn out to be profitable. Read more on Startup News

Important questions investors must ask a startup founder