If you want me to fund your start-up … I might want to ask some questions first

I have always thought that it would be great to be extremely rich, so I think it would be great to invest in the next Google or Apple while it is just a small team working from a garage. Then I could watch the company become a billion dollar a day powerhouse and sit back to enjoy the life to which I would like to become accustomed.

But to be honest I am not sure that your company is likely to be the next Google and I don’t actually have much money sitting around to lend you.

I am sure that there are some people out there who would love to be your patron (er – venture capitalist) because they want to be someone who patronises the arts (er I mean innovation). But I just want to be rich. I am also sure that I have missed out on investing in some fantastic ideas, but I am not entirely convinced that you will make me rich even if you have an awesome product.

So, if I don’t want to invest in you just because you deserve a shot at bringing your new creation to the world and I am not even confident that a great product will lead to success then what questions should I ask?

Here is what I would not ask:

  1. Do you have a rehearsed elevator pitch you can give me? It will help me if you can succinctly explain what you do, but I am also willing to invest a little time to help you explain your idea if it is still coming together, so I am happy with a pretty messy pitch.
  2. What industry are you disrupting? If you are already disrupting an industry then you don’t need my money, you need support scaling your endeavour and protecting your back from fast followers, not really money to try out your idea.

Here is what I would probably ask on our first meeting:

My not-very-important question

My first question will be “What is your idea”? There is no wrong answer … I am just being friendly.

A good answer might be “students need a better way to eat muffins without getting sick because (insight – muffins are great but not really a long term source of good nutrition).”

Another OK answer might be “My friend and I think there is some kind of opportunity in wearable tech that allows you to remote control drones with Viking like robots in them”. I have no idea why you would think that is a good idea but I would be happy to listen to your story while I finish my beer or coffee.

A not so good answer might be “Let’s make a time for me to run you through my giant business plan”. That sounds a bit more painful that hearing about your idea over coffee.

Another not so good answer would be “I am a cereal entrepreneur who is working on a MongoDb approach to big data”. I never understand why so many entrepreneurs want to launch products aimed at the already saturated breakfast cereal market and whenever I hear about MongoDb (which is apparently very good) I think about a movie called Blazing Saddles that was around 100 years ago with a line “Candy-gram for Mungo”.

Er … if you meant serial entrepreneur then you are a repeat offender who is not making money for people or you are already doing well and don’t need my money – you can get it from your own bankroll or your existing posse of investors. And I have not launched lots of businesses so I probably won’t be of too much help to you.

My more serious questions

But now I have a vague idea of what I think your new service offering is then I can start to ask some more useful questions.

Why is it a good idea?

Here we go – “Why does the world need your solution?”

“Great – so what problem are you actually solving – for who?”

“And your solution addresses that problem by doing what?”

“Who are you hoping it will help and who are you not worrying about?”

“Oh – cool. How will they have to behave differently to really benefit from you cool idea?” “Will they do that?”

Why now?

Why do you think now is the right time for your idea? Why did you decide on this solution and this approach?

Who else is trying to solve this problem? Who else is providing things to your target clients? How might these potential competitors (and allies) impact your opportunity? Who might be worse off if you succeed and what might they do to respond?

Where is the money?

How are you planning on earning money before burning money?

How do you plan to earn money before you spend it? If you can’t then how might you deal with the potential cash-flow issues between you spending money and you getting paid?

How is it that you will make money out of your idea? Or if it is purely a charity, how will you get sustainable funding?

These are mean questions because a lot of start-ups are about learning rather than profits … and there is something called “patient capital”. This is money that can be invested by patient people to allow an idea to germinate and evolve rather than trying to eat the seeds before you grow the plant. I agree with this principle … but I don’t want to inject money into something only to find the money was spent with no value created (either knowledge, understanding or ROI). So I will ask the question to see what you say.

Are you a start-up or a small business?

Are you currently learning or earning?

A small business wants to become a giant one, but it is generally busy making money today. This is great, but I would take a different view to investing in a going concern than I have to investing in a start-up. If you are a small business then I am curious about how many clients you are getting, your churn, how your clients would describe you, whether you have a good set of stable clients etc. I would also ask “have you read the Rockefeller Habits book or the first 90 days” and I might ask if you see yourself as more a salesperson or a builder or a supply chain person.

A start-up is not making any money. But a start-up is continually learning and experimenting … not just writing code and pitching new ideas to people. So my next questions would be “Have you read Business Model Generation by Alexander Osterwalder, or The Start-up Owner’s Manual by Steve Blank”.

If you are learning rather than earning, then my obvious question is “what hypotheses are you currently testing?” Then “How are you testing them and how do you think you will know if you proved/disproved them?” And I guess also – “What have you learned so far – how did that change your approach (or business model if you know what that is)?”

Ongoing questions

If I did have some money and gave it to you, I guess I would want to know how things were progressing. So I might buy you a coffee every couple of weeks or so and ask some more questions:

The best update question would be “how many millions of dollars did you make this week?” But I guess if your start-up was that hot you wouldn’t have let me invest.

So more likely you are still fumbling around on your way to greatness. I would just ask “how are you going”?

And some good answers might be:

  • We learned “blah” so know we are doing “X” differently, or now we are consolidating/trying “Y”
  • Next we want to learn “Z” so we are going to try “blah”. Based on what we learn ….
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