Communication goes both ways – Questions an entrepreneur should ask an investor

Last Thursday I had the last class of another course (Business development lab, which I think most of the people in Technology based entrepreneurship are taking as well). During the class, we watched some Dragon’s den pitches. If you don’t know what Dragon’s den is, it’s a TV show where entrepreneurs pitch their idea to potential investor. Since it’s a TV show, it doesn’t necessarily shows what happens in real life, but it teaches some valuable lessons on what to say and what not do say during an investor pitch, especially in anticipation of our final BDL pitch.

Now, when pitching to an investor, we tend to speak too much in an attempt to appear confident and to show that we know what we are talking about, but most of the times that’s not the case, and after some question from the investor the answer is “No”. Hopefully that won’t be the case for us, since we prepared 4 months for this (I’m sorry if the people who are not taking the BDL course cannot relate). But what then? Say we find an investor who is willing to invest in our company, do we blindly say yes? We have to remember that a pitch it’s not an exam, and we are allowed to ask investors question for our own interest, it’s our company we are talking about after all.

So, what are the questions an entrepreneur should ask an investor?

• What’s their investment history in your sector: this should come with no surprise. An investment is not a bank loan, and an investor has the same interest as you have to make your company successful. Choosing an investor who already know your sector can give you some important advantages and insights.
• Do the prefer to lead or to follow deals: finding a lead investor is crucial. A lead investor is simply put the first person who puts money into the deal, and prioritizing leading investor over follower investor can really help your fundrasing process. Now, you may notice that since the first investor who “puts the money on the table” is the leading investor, by definition the first investor you find IS the leading investor, but that’s not the case. A leading investor is more than that, as he is the proof to other investor that your company is worth attention, and getting a first small investment (like follower investor tend to do) can give out the wrong message.
• What’s their investment capacity at the moment of their investment: investor are people as well, and don’t have infinte money (or capital) to invest. Finding out where they stand in their investment cycle can help you figure out how seriously they can consider investing in your company.
• What is their decision making process: again, real life it’s not Dragon’s den, and it might take time to get an answer from an investor. Knowing how they make a decision and evaluate an investment can help you determine how long it will take before the deal is finalized.
• What information do they need before making a final decision: while you should have already give the potential investor all the information you deem necessary, sometimes different investor can look for additional information in order to get more comfortable. Providing this information straightaway can help you find an investor earlier.

This question were adapted from an article I’ve found that i thought it was worth taking notes, but that I sadly did not save. I will update the post if I find it again.