A meeting with potential investors is always a two-way process; you are entitled to ask questions and respond to their concerns. When someone wants to invest in your business, it's an exciting time, but one that requires thorough due diligence from both of you. After all, it's a business, and you want to be sure that you are working with the right people on the best terms possible. When someone wants to invest in your business, these eight big questions can help you get started.
1 | What is your goal with this investment?
Ask potential investors a numbers-focused question. What kind of return do they expect for their investment, and is that achievable for your small business? Does their investment strategy focus more on wealth-building, or is it geared more toward building relationships with small business owners? How much do they want to invest?
The investor can also be asked whether they wish to invest in a debt capacity or equity. Equity financing involves selling part of your company as equity for capital with no obligation to pay the investor back, but to provide them with a good return.
Debt financing is borrowing money from the investor and paying them back with interest. By asking about the nature of this investment relationship and the amount they are willing to give, allows you to better understand how involved they will be (and want to be) with your business.
2 | How involved will you be with the company?
Investors may choose to sit on the board of companies they invest in. Before you take their investment, you may want to know if you will have a good working relationship. If a potential investor wants a seat on the board, ask if they have any connections or expertise they can offer. Set expectations early on by being specific about who will fill the seats and their role.
3 | Do you have industry experience and connections?
Connections are an important question when someone wants a piece of your business. Industry connections are invaluable for acquiring customers or vendors who trust your business because they've previously worked with you. If you don't have any connections, working with an investor may provide an opportunity to build them.
After establishing whether your investor has industry connections, find out if they have experience. Experience is one of the biggest factors when deciding who can best help your business grow. Investors with previous work experience within an industry are generally a better fit than those who don't have relevant experience.
Don't forget to ask for references. Meeting with an investor should be like an interview; the best way to understand how they work is to talk to people who have worked with them previously. Ask if they can connect you with another founder they have worked with. It's a great way to gain insight into how the process works and their commitment.
4 | Will you be our lead investor?
A lead investor is a person who contributes the majority of the capital needed to get a business off the ground. They will lead the funding round and act as a link on behalf of other investors. Without a lead, you are not going to get anywhere.
A leading investor in a round can set pricing and terms. However, while you may choose not to discount investors who are not leading the round, you will want to understand where they stand, what they have to offer, and how they will contribute to the bigger picture before you decide to take their investment.
5 | What's your feeling about our timeline?
Being on the same page about the timeline at every step is essential. Whether it's the investment, product launch, or company growth, it's important to be clear on where you think your timeline is and find out if the investor is comfortable with it. It could even be useful to look into the future and talk about what you think the company may look like 5 or 10 years from now, and what an exit might look like so you both know that your long-term expectations are aligned.
6 | What if we fail?
Investing is risky; everyone who invests knows that. This question will reveal how badly the potential investor wants to take the gamble. If the company goes belly-up, will it risk the investor's future? Is there an exit strategy? How they react to this question tells you a lot about their interest in your business and willingness to invest.
7 | How often should we plan to meet after funding?
Some investors will require a greater amount of interaction than others. The value you may gain with these people on your team and a vested interest in your success, can be far more important than the money itself. Yet, you want to avoid being weighed down and hampered from achieving results. Ask this question to find an investor that can work with you without resentment or frustration.
8 | What can we do better about our company, team, or product?
This question allows you to eliminate any concerns the investor may have before agreeing while reiterating all your proposal's positives. Many founders are opposed to bringing up negatives, but it's best to address and discuss them before they can turn down your proposal.
The bottom line
Investors do their due diligence and dig deep before investing; you should do the same. You need to take plenty of steps before closing the deal and seeing your business bloom. Once you have found a potential investor, you must be completely transparent about the good and bad of your business to determine if it’s a match for both parties. Remember that investors want what is best for their money just as much as you want what is best for your company. These questions will help make sure you know everything there is to know about the investor.
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We also understand just how valuable real world knowledge and experience can be to the everyday business owner or private investor when it comes to demystifying, unpacking and unpicking the complex world of investment. So we’ve talked to the experts for you, and they've shared their experience and knowledge so that everyone can reap the benefits. Read our expert blogs.