Seed Fundraising — 4 Investor Gotcha Questions

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.” 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. How it Hurts: 2. What stage are you at in the process? “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.” Correct Answer: 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. How it Hurts: 3. How much are you raising, at what valuation? 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”. Correct Answer: : 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. How it Hurts 4. Can I talk to a customer? 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”. Correct Answer: 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. How it Hurts: 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. The Basics of Meetings 4. VCs vs Seed Funds vs Angels 5. How to get a Meeting 6. The 5 Most Common Pitch Mistakes 7. How to get Early Momentum 8. How to Handle an Angel Investor Meeting 9. How to Close the Lead Investor 10. 4 Investor Gotcha Questions 11. 10 Traits of Successful Founders If you’re a B2B company at the seed stage looking for help, you can reach me at ash@ashrust.com. Thanks to Kaego Rust and David Smooke for their help on this article.