In lieu of this weeks material, my blog post this week will be discussing important topics and questions to think about when investing in a business. Although I am no investment guru, I stumbled across a few articles this week that made me think about all the important things to consider before investing your personal or a VCs money in a start-up business.My favorite article that I read this week was 65 Questions Venture Capitalists will Ask Start-Ups, by Richard Harroch. I will spare your time and refrain from discussing all 65 questions, as you can read them another time, but one thing I do love about this particular article is how it places sets of questions into 12 different categories. Those categories are as followed:
- Overview (of the company)
- Market
- Founders & Teams
- Products & Services
- Competition
- Marketing & Customer Acquisition
- Traction
- Risk
- End Game
- Intellectual Property
- Financials
- Financing Round
Thinking about particular questions in these 12 categories is something that I see as essential when considering making an investment. The specific questions you chose to ask may… WILL vary based on the company at hand, but I think these subsets create a simple and effective foundation for an investor at any level. Many of the other articles I read followed these same or similar categories. The article 100 Questions Investors ask Startups When Pitching use the same categories, although many of the questions differ from the first article.
Other than these two articles, most of the articles share their 5, 8, and 12 essential questions to ask before investing in a startup, and each of the articles truly offers a different set of questions from the last. Does this inconsistency mean that there are no meaningful questions to ask before investing in a startup? Absolutely not. What it means to me is that each investor or group of investors is looking for something slightly different in a company. The article Why People Invest in Startups has an excellent excerpt that explains my last stated point perfectly:
No Two Investors Are Alike
While not quite as diverse as snowflakes, very few investors are exactly alike. Some invest on their own behalf or on behalf of an entity. Some want to be actively involved in the startups they invest in (and will only invest in those instances where they feel they can add value), while others are simply looking to diversify their portfolios. Investors in our network routinely express a wide range of preferences regarding investment amounts, industries of interest and disinterest, company stage, valuation, geographic location, revenue generation, and various founding team characteristics.
Investors and VC firms decide to invest in companies for different reasons, and these reasons are ultimately what is going to help these individuals and groups formulate the questions they will ask to a prospective startup company looking for funding. As stated earlier, I believe the 12 categories above are an incredible starting place for investors interested in funding a startup, but the questions that you decide to ask will depend on an investors reasoning for investing and on the company being questioned. Although there are a plethora of “Essential Questions to Ask” articles circulating the web, only you as the investor can decide which questions will produce the best answers for you, your money, and your future in business!
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