10 questions to ask your vc
Filed in archive Entrepreneurship on January 24, 2005
Dispatches has the right questions what to ask you VC:
"
How big is your fund?
There is no point trying to raise $1 million from a $1 billion fund.
- How much is left in the fund after commitments and reserves for follow-ons are accounted for?
Is there enough "dry powder" in the fund to support your company's needs over time?
- When do you intend to go out fundraising?
In
other words, are you going to Disappear for six to 12 months
immediately after making an investment in my company and joining my
board of directors?
- When you fundraise and tell the story of your three
most successful investments, how will you describe how value was
created for LPs?
The answer to this question will give
you some insight regarding how you might be expected to create
value. For example, if the firm's biggest success came as a
result of increasing valuation multiples through the consolidation of a
fragmented industry, your company's strategy of creating value through
innovation and organic growth might not be a great fit.
- Who is on your firm's investment committee?
Depending
on the firm, your primary contact may not be among the small group of
founding partners who may be making key investment decisions.
- What was your firm's advertised IRR when you raised your last fund?
If
the firm raised its most recent fund based on an advertised trackrecord
of, say, a 60% internal rate of return, you might want to question
whether your plan's forecast of, for instance, a 30% IRR is really
going to maintain your investor's interest over time.
- May I get a copy of the "book" you sent around when you raised this fund?
What
promises did the general partners make to their limited partners when
they raised their last fund? How might those promises impact the
fund's relationship with your company?
- What do you think the exit will be on this investment? Do you think it will be a financial buyer or a strategic buyer?
You
are going to be asked this question. It's only appropriate that
you find out up front what the expectations of your investors are
regarding this critical issue.
- As you think about how to shape the company so that it
is optimally positioned for that exit, what three things do you think
need to be done in my company?
The general partners are
measured against their ability to deliver value to their
investors. By what metrics will you be judged?
- What was your firm's biggest disaster as an investor? How did the investment go sideways?
There
is a difference between a bad result and a bad investment. Does
the investor know the difference? How did they behave?
How big is your fund?
There is no point trying to raise $1 million from a $1 billion fund.
Is there enough "dry powder" in the fund to support your company's needs over time?
In
other words, are you going to Disappear for six to 12 months
immediately after making an investment in my company and joining my
board of directors?
most successful investments, how will you describe how value was
created for LPs?
The answer to this question will give
you some insight regarding how you might be expected to create
value. For example, if the firm's biggest success came as a
result of increasing valuation multiples through the consolidation of a
fragmented industry, your company's strategy of creating value through
innovation and organic growth might not be a great fit.
Depending
on the firm, your primary contact may not be among the small group of
founding partners who may be making key investment decisions.
If
the firm raised its most recent fund based on an advertised trackrecord
of, say, a 60% internal rate of return, you might want to question
whether your plan's forecast of, for instance, a 30% IRR is really
going to maintain your investor's interest over time.
What
promises did the general partners make to their limited partners when
they raised their last fund? How might those promises impact the
fund's relationship with your company?
You
are going to be asked this question. It's only appropriate that
you find out up front what the expectations of your investors are
regarding this critical issue.
is optimally positioned for that exit, what three things do you think
need to be done in my company?
The general partners are
measured against their ability to deliver value to their
investors. By what metrics will you be judged?
There
is a difference between a bad result and a bad investment. Does
the investor know the difference? How did they behave?
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