The four essential questions female founders need to ask keen Investors

Exciting news! After all your hard work preparing for your fundraise and meeting with prospective backers, you’ve finally got an investor that seems keen. But now it’s time to take a breath. How do you really know if this is someone you want to get into business with, and how can you determine whether this is a genuine deal that makes sense for you and your start-up?

There are 4 essential questions you need to ask – miss one out and risk doing a deal with this investor at your peril.

Question 1 - Are they the right investor for you?

The main way you’ll find this out is by getting curious and asking questions. Ask any professional investor, in the hundreds of investment pitches they’ve heard over the years, when do they remember a single founder asking what would motivate them to invest? It happens very rarely – and that is a huge mistake. If you don’t know what’s important to your prospective investor, how can you possibly know if they’re a good fit for you? Ask open, strategic questions tailored to the type of investor they are and their investing experience. Which sectors and industries do they prefer to invest in, what challenges do they face when deciding where to invest, what concerns do they have when investing in start-ups? The answers will be very revealing.

Unless it’s very clearly stated on the investor’s website, you also need to be clear about the typical commercials they’re looking for on a deal, including what stage venture deals they come in on, the deal and valuation size they look for, and typical investment amount. These questions will really help you not only understand what’s important to your potential investor, but whether they’re a good fit for you. If you don’t think they’re a fit, you may as well politely end the conversation there.

And as you walk them through your investment proposal, it’s essential you check that they’re on board with your vision, values and plans for growth and exit. If you’re not aligned, then don’t take the money, no matter how tempting it seems because you will regret it.

Question 2 - Are they prepared to invest?

Us founders have happy ears, and get a bit carried away when an investor seems keen, thinking that the deal is in the bag. Far from it! It’s so important to confirm they’re a genuine ‘yes’, and not just leading you up the garden path. Investors have a big fear of missing out – FOMO is all too real in the world of venture capital. Nobody wants to be the guy who ‘let the unicorn get away’. Plus, they sometimes like to take meetings with interesting start-ups they have no real intention of investing in, so they can learn about what’s going on in the market and keep on top of all the latest developments.

Are they serious? The only way you’ll know is by asking them directly! Never leave an investor meeting without this clarity.

In closing the investor, first walk them through your deal - how much you’re raising, your valuation, timescales, the overall terms and what you’re looking for in investors. Create some pull rather than push, to raise your value and authority. Show the investor that you’re picky about who you work with, so that they effectively sell themselves to you. Remember, you have standards, and you want to work with the best. You’re not here with a begging bowl!

Then simply ask the question: ‘Would you be interested in investing?’ If it’s a ‘no’ or a ‘maybe’ (which is effectively a ‘no’), find out why, explore any superficial brush off by getting curious and digging for answers, ask if you can stay in touch, and if they have any contacts they think might be a better fit for you at this point. If you get a ‘yes’, then great news! But don’t get too excited just yet…

Question 3 - What are the terms and conditions?

The deal’s not done yet. Check to see if there are any conditions for this money being invested, as you need to know this now. For example, they might only want to come in once you have a lead investor confirmed, or there might be a particular date after which they will have money available. Ask them what key things they’d expect to see in the Term Sheet, the key document that captures all the basics of the investment deal. Will they want a board seat, do they charge management fees, what decisions will they want a say in? Anything that doesn’t seem right to you is a potential red flag. Proceed with caution. There’s one more thing you need to investigate…

Question 4 - What would they be like to work with?

A final check for fit with potential investors you’re looking to invite to come on board is essential, because this needs to be a long-term, mutually beneficial relationship. Ask them how they feel their interests are aligned with yours, and what value they believe they could add as an investor in your business? And my favourite question of all – “If I were to speak with other founders you’ve backed, what do you think they would tell me about what it’s like to have you as an investor?”. Whatever they answer here, verify that by speaking with a few founders in their portfolio to get that all important trusted referral.

Above all, remember that you have agency – investors need to find great businesses to back as much as you need investment, so the power balance should feel equal. If the fit isn’t right, never be afraid to walk away. Hold your nerve and move onto your next investor conversation. You’re now one step closer to finding the right person to back you.