Every startup founder loves to prompt for questions from investors and potential key team members about their vision, and the huge opportunity that can be had with their disruptive technology. Yet if you are on the other side of the table, there are some other key questions that you need to ask, which will tell you more about the real success prospects for this business.
Enthusiastic startup founders may try to deflect or minimize these questions in true media-training style, so you need to be patient, calm, and persistent to get the whole story. From my perspective as an investor, I recommend that every founder needs to know the answers to these questions, be open and honest in answering them thoughtfully, and without making excuses:
What is the current runway and burn rate? These terms quantify how fast money is being spent, and how long the business can survive before another round of investments is required. Early stage burn rates over $50K per month, or a runway of less than six months may indicate an inefficient or desperate startup. Think twice before you jump in.
How complex is the capitalization table? The allocation of shares among the founders, and the number and size of outside investments, will tells volumes about the health, stability, and management of the business. Most founders like to talk about their many months or years of sweat-equity, but cash invested is a stronger commitment.
When did this effort really start, including pivots? If the company has been around for more than a couple of years, and still has no product or revenue flow, there better be a good explanation. One more key employee or one more investor will probably not turn the situation around. History gaps and founder turnover may indicate a long road ahead.
Does everyone on the team have a clear role and mutual respect? You won’t get this answer directly from the founder, so ask to talk to other key team members to make sure everyone is carrying their weight, and communicates effectively. Some conflict and differing perspective is healthy, but too many titles or close relatives should be suspect.
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