Investor meetings can be a nerve racking experience for founders. In addition to pitching well, you also have to be wary of giving answers that could hurt your chances of an investment. Here’s how to answer the most common gotcha questions:
1. Who else are you talking to?
Correct Answer: “We feel privileged to have a number of investors interested but we’re only concerned with finding the right partner. When we find that person, we imagine they will want to make an independent decision.”
How it Hurts: Given investors turn down 99% of the startups they meet, any name you mention is likely to be a ‘no’. Thus anyone you mention is essentially providing the current investor a negative reference. If you feel you have to give name, only provide existing investors rather than those currently in process.
2. What stage are you at in the process?
Correct Answer: “We don’t need money now, so not concerned about timing. We’re focused on finding the right partner to help build the business over the long term.”
How it Hurts: Fundraising almost always takes longer than you expect. If you provide a specific deadline and you’re still raising after it passes, investors may interpret this as a negative signal.
3. How much are you raising, at what valuation?
Correct Answer: For Angels and Seed Funds provide your target and cap: “We’re raising $750k on a SAFE capped at $6M”. For Larger VCs ($200M+ fund size), don’t mention valuation: “If we find the right partner, we have a growth plan which leverages $2.5–3M over the next 2 years”.
How it Hurts: If you tell a large VC you’re raising $750k, they are likely to think it’s too early for them to invest and say no. If you tell an Angel or Seed Fund you’re raising $2.5M+, they will assume it’s too late for them and pass.
4. Can I talk to a customer?
Correct Answer: For checks of $100k or less, only provide general customer quotes. For larger checks: “We want to be respectful of our customers’ time, so we’d ask that you do the customer reference as your last diligence item. In that situation, we’d expect a positive customer reference to result in an investment offer from you”.
How it Hurts: Your customers simply don’t have enough time to talk to all your prospective investors. If you use your best customer references on small checks or investors who aren’t really interested, you risk being unable to provide a good reference to a better prospect.
Answering these kind of questions in real-time is tough, especially when your fundraising round is on the line. Take the opportunity to prepare for the hard questions, control the message and give yourself the best chance of raising the round you need to keep building.
This article is part of a series on Seed Fundraising.
1. When to Raise Money
2. How to Build a Deck
3. VCs vs. Seed Funds vs. Angels
4. How to Get a Meeting
5. How to Request an Introduction
6. How to Get Early Momentum
7. How to make a Good Pitch Great
8. The 5 Most Common Pitch Mistakes
9. Meeting Requirements
10. The Basics of Meetings
11. How to Handle an Angel Investor Meeting
12. Know these Numbers for your VC Meeting
13. 4 Investor Gotcha Questions
14. How to Follow-Up After an Investor Meeting
15. How to Close the Lead Investor
16. The 4 Stages of a VC Process
17. How to Raise a $2 Million Seed Round
18. Go from Investor YES to Cash in Hand
19. When Investors Say Yes but Mean No
20. When and When Not to Use an Investors Name
21. Stop Making These Common Fundraising Mistakes
22. How to Avoid Bad Terms that Kill Startups
23. What to do After Receiving a Term Sheet
24. Term Sheet Problems Part 1 — Money Talks
25. Term Sheet Problems Part 2 — Boardroom Blues
26. Term Sheet Problems Part 3 — Side Letters
27. 10 Traits of Successful Founders
Sterling Road invests in pre-seed B2B startups based in North America. Full process here: sterlingroad.com/process.
You can reach me here: ash@sterlingroad.com
Thanks to Kaego Rust and David Smooke for their help on this article.
