Questions You Should Ask VCs #74

Jason Kirby
May 28, 2024

What's Below in Issue #74:

📰 - Transforming your fundraising journey by asking the tough questions!

📊 - Software M&A: Forget averages, focus on the median for realistic exits

🎙️ - Podcast #42 w/ Peter Goldstein, serial IPO entrepreneur and public listing expert

💵 - Premium startup resources

🆓 - Free startup resources

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Your Pitch Deck Probably Sucks...

For most first-time founders, the idea of a pitch deck sounds easy, but I often get decks with "v43" in the filename, implying it's the 43rd iteration of a deck 😖

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------------------------------------------------------------------------------------------------------------------------------------------------------------Ever walked out of a VC meeting feeling like you missed your chance to really get to know the investor on the other side of the table? Let’s change that narrative. Today, we're diving into the art of flipping the script and making sure you leave those meetings with not just a potential investment, but also a clear picture of who you might be partnering with.

Imagine this: You've spent weeks perfecting your pitch, but within minutes of your meeting, you notice the investor's eyes glazing over. They’re losing interest. Why? Because you’re delivering a one-sided presentation instead of engaging them in a two-way conversation. Investors are looking for dynamic interactions, and if you don’t captivate them by turning the meeting into a dialogue, you risk losing their attention—and the opportunity to secure that second meeting.

Why Asking Questions is so Crucial

In the high-stakes game of fundraising, the last few minutes of your pitch are pure gold. This is your time to dig deep and uncover what truly matters. Remember, an intro call isn’t a one-way street. It’s your chance to ask tough questions and understand the VC’s motivations and expectations.

I can't even keep track of how many "investors" I met with in my early years when they have no capital to invest or no intention of investing. I used to come in hot, pitch my heart out and walk away thinking, "Damn, I'm good, who wouldn't want to invest?!?" 

Unfortunately, the good investors saw this as a red flag and walked away, and the "investors" that leaned in didn't have any money, but we're great at feeding my ego. I would walk away thinking they would for sure invest, but rather they'd give me the runaround, drag out more meetings, and then pitch me something of their own...it sucked knowing I wasted so much of my time.

Don't make rookie founder mistakes like me, make sure you ask questions, and to make it easy, I've added a bunch for you to reference below.

Key Questions to Ask VCs

Here are some essential questions to ask:

  1. What fund are you investing out of?

    • This helps you understand their current investment capabilities.

  2. How many deals do you have left in the fund?

    • Ensure they have the capacity to invest in your company.

  3. Who else have you seen in this space? What did you like or not like about them?

    • Gain insights into your competition and the VC’s market perspective to see if they're actively seeking deals in your industry.

  4. What do you find most risky/difficult about starting in this space?

    • Identify potential red flags or challenges they might have with the space to know if they're serious about investing.

  5. Does the fund have experience investing in my sector or have a thesis on the market and where it is heading?

    • Ensure they have relevant expertise and value to add.

  6. Would you buy or use our product? If not, could you tell us why?

    • Understand their genuine interest and potential concerns.

  7. Why do you think my business will fail?

    • Gain a new perspective on potential weaknesses.

  8. What comes along with the money?

    • Clarify any additional support or resources provided or if they require a board seat.

  9. What type of partners and partner relationships will be coming alongside the investment?

    • Understand the broader network and support system. Understand what doors they can open for you.

Preparing for VC Meetings

Preparation is key to a successful VC meeting. Here are some tips:

  • Research the VC Firm

    • Know their background, history, and past investments​ 

  • Find Common Connections

    • Use your network to get a warm introduction​

  • Understand the Firm’s Focus

    • Ensure your business aligns with their investment strategy. Don't waste your time meeting if they don't have a clear presence of investing in your sector

  • Have a Clear Objective

    • It should always be to win another meeting. You're trying to sell them on giving you more time in as short of period of time as possible. You don't come in asking to get married on the first date. You're trying to get more dates. Raising capital is very similar. Build a relationship.

Conclusion

Turning the tables and asking tough questions can transform your fundraising journey. It’s not just about securing funds, but about building a partnership with a VC who genuinely supports your vision. Use your golden moment wisely and make every meeting count.

-------------------------------------------------------------------------------------------------------------------------------------------------------------Data Corner

SaaS M&A data corner

3,500 Software M&A Deals Analyzed

In 2023, a comprehensive analysis of 3,493 private software M&A transactions revealed key insights for startup software companies. This dataset includes 2,062 SaaS deals and 1,431 traditional software deals. One critical observation is the significant difference between the average and median revenue multiples. While the average revenue multiple for software M&A transactions was 8.42x, the median was considerably lower at 2.04x.

This disparity highlights the influence of high-value outliers on the average, which can skew expectations. For startup founders, focusing on the median multiple provides a more accurate benchmark for what is typically achieved in the market. Relying on the average could lead to inflated expectations and potential disappointment.

By understanding these median values, startup software companies can better align their exit strategies with market realities, ensuring more realistic and attainable goals. For a detailed breakdown of these findings, refer to the Summary Stats - 2023 Private Software M&A Deals.

------------------------------------------------------------------------------------------------------------------------------------------------------------Listen to Peter Goldstein's Insider Tips on Going Public in Episode 42

Fundraising Demystified Episode 42 with Peter Goldstein YT Thumbnail v2

In this episode, we explore the opportunities and strategies of going public with Peter Goldstein, founder and managing director of Emmis Capital and CEO of Exchange Listing. Peter shares his extensive experience as a serial IPO’d entrepreneur in helping companies transition from private to public, detailing the intricacies of capital markets and the opportunities available for micro to small-cap companies looking to enter the IPO arena.

Peter walks us through his journey from starting his first company at 24 to becoming an expert in public offerings. He discusses the challenges and triumphs of navigating the IPO process, the importance of understanding market dynamics, and how his firms assist companies in preparing for and executing a successful public launch.

Check It Out

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Jason Kirby

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