What VCs Ask Themselves Before They Invest in Startups by Aaron Webber
Over the course of my career as an investor and business owner, I’ve seen every type of pitch for a new business you can imagine. Many of them were disappointing. To invest in startups you have to ask yourself the right questions.
A competent CEO plays a remarkably large role in my overall impression of any company. A lot of it boils down to how you present your idea, and not so much about what you’re presenting. Any venture capitalist can look through a pitch deck, like what they see, and then withhold funding after meeting the CEO, or the founder of the same company.
Questions investors ask themselves before they invest in startups
Don’t fool yourself. Investors aren’t asking to meet with you before they invest in startups because they want to know more about the company, or because they think you’ve withheld information. A Google search or a financial printout tells them more than they need to know.
1. Do I want to invest in this CEO?
Investors seek face-to-face time with their prospective investment because they want to know who they’re working with. We don’t invest in spreadsheets, we invest in people.
2. Does this founder know their business inside and out?
While every situation warrants its own specific approach, there are a few characteristics that I look for in a CEO during a pitch. The answers to these four questions are the most valuable to me when deciding who I partner with.
Do you know your stuff? Do you know your business model inside and out? And do you know your market like the back of your hand? Are you able to see the opportunities and challenges ahead without succumbing to myopia?
If your answer is anything but “Yes” to any of these questions, go back to the drawing board and don’t bother asking for any amount of investment. It is always reassuring to see someone with a brutally honest understanding of where they are now and where they will be with full funding, given the resources they’ll need.
3. Does this founder have leadership skills?
Do you have the ability to lead people? I’m not talking about just managing, I’m talking about true leadership. Before I invest in startups I want to know that the leadership team can take a startup from the theoretical “wave my hands in the air” idea phase to a business plan that makes money is a difficult task. It requires you to have the ability to lead others through a dark tunnel and keep everyone from jumping ship.
I am always checking to see if someone, usually the presenter, possesses this inherent leadership trait. It’s an intuitive judgment call on my part. However, by observing actions and how others act around that individual, I can usually get a solid tell on his or her DNA.
When I sense that a CEO is a strong leader, I feel more confident that they will be able to guide their team through adversity when it inevitably arises, regardless of the quality of the idea, business, or venture.
4. Does your business idea have a fundamentally sound economic engine?
Is there something in your idea that can really be turned into a business? Not a hobby. Not just a good idea. But an actionable idea that can be adjusted and tweaked as it relates to yourself and the team you are leading.
It needs to be deeply ingrained within yourself and your team, and be something that can turn into a powerful economic engine — one that can affect positive margins on any input, and that can be banked, reinvested and compounded going forward.
5. Is this founder focused?
Are you focused? Is your “simple solution” really a simple solution? Or is it a mess of ideas? When sitting through a presentation, or reading a pitch deck, few things are more frustrating than hearing the CEO branch into other ideas, or “potential business” without fully explaining the one for which he or she is here.
If you can’t stay focused during the meeting, how can I expect you to be focused while running the business? You might have great ideas that create a great business. But remember: That’s only if they work. That’s only if your business is successful. And that’s only if you get my funding.
Get the basics down before pitching to investors
These are the only five things that I, as an investor, look for in a CEO during a pitch. If you can come into a pitch and answer these questions quickly, easily and fully, you can expect open ears and open checkbooks. When investors choose to invest in startups, they want to make sure you have the basics down.
Do we care about nice suits, spiral-bound financials, prototypes, and nice working spaces? Sure, it helps. But no amount of flash or flair will help you if you can’t get these basics down.
Rounds of applause make you feel good while you talk. But you can’t take those to the bank and pay your employees. “Good Luck” and “I can’t wait to see what you can do” might stoke that fire in your chest, but without funding, that fire will burn out pretty quick.
– CRUNCHBASE
Aaron Webber, a serial entrepreneur, venture capitalist, and business guru. He is the Former President and CEO of Unicity International and is currently the CEO of Webber Investments and Chairman of the MadisonWall agencies.
