Top 10 Questions to Expect from VCs
Russ Wilcox
Partner at Pillar VC
Preparing for your first pitch meeting? Here are a few questions you will get often, and how best to answer.
1. What is your vision for the business?
Bad Answer: I want to flip it for a quick profit next year.
Good Answer: We will work tirelessly until we put a Coke within arms reach of every person in the world.
2. After the round closes, who are your first three hires?
Bad Answer: a secretary, a customer support rep, and my brother who is a really good engineer
Good Answer: a world-class VP Marketing and 2 sales reps with golden Rolodexes, followed by a VP of Operations, and then a few months after that a VP Finance to upgrade our part-time CFO. (you have carefully thought this through in advance! you are greedy to hire the best people in the world!)
3. What keeps you up at night / what is your greatest risk?
Bad Answer: nothing / the greatest risk is raising enough capital from investors
Good Answer: we have discussed this a lot. Our top three risks assuming we do get the capital are 1, 2, and 3. That is why during the seed we will do ____ to resolve 1; and ____ to scout out whether 2 will turn out to be a problem. We will then turn to focus on 3.
4. How much are you trying to raise?
Bad Answer: we want to raise $20 million (you need $10M; hope VC offers half)
Good Answer: we need to raise $8 million to get to milestone X. If the syndicate supports then we would raise $10 million and get to milestone Y.
-> Approach your target size from below so you are sure to exceed expectations
Also, take a moment to learn the word “syndicate” – it refers to the investors as a group. This term is used frequently in finance.
5. How do you want to see the round come together?
Bad Answer: two new VCs plus the insiders (bad answer because you don’t know if this investor is willing to work with a co-lead, you don’t know if there will be another interested VC to join, also you have just made life more complicated for everyone because there will need to be more heads around the table)
Good Answer: we want to pick the right lead partner and then work together to figure out the best and most compatible syndicate.
6. Are your insiders participating?
Bad Answer: we haven’t asked / they are still deciding / it depends
Good Answer: yes they will take about $2 million assuming typical valuations and a credible lead
7. What are your valuation expectations?
Bad Answer: we want $X valuation (any firm number will make you look bad if it appears too low, yet make the VC feel bad or give up if it appears too high – so you are very likely to cause the VC to cringe, no matter what you say!)
Good Answer: We will let the market tell us what terms are reasonable. As long as the valuation is at market, we plan to pick the investor who can add the most value and who feels the most aligned with our team and vision.
8. When do you need a decision?
Bad Answer: next week (no way can the VC move that fast)
Good Answer: we are just starting to reach out so we would hope to see indications of interest or receive a term sheet in the next 4 weeks or so. (that leaves the VC enough time but not extra time)
9. Who else is in the mix to lead?
Bad Answer: “no one else”, or you actually name “Firm X”. That is bad if Firm X is a better fit/more famous than the VC you are talking with, because then the VC knows he or she will likely not win the deal and gives up; bad if Firm X is a poor fit/less famous than the VC you are talking with because you seem to be fishing in the wrong waters; bad if Firm X isn’t actually as committed as you think because if two VCs later compare notes you will appear to have exaggerated; bad if Firm X is their friend and they don’t want to antagonize them by competing for the deal; bad if Firm X is their enemy because they don’t want to have to syndicate with them; and bad when your interested VC asks about Firm X next week and you have to admit they passed – in short, in many, many ways naming a specific firm can backfire, so just don’t discuss your pipeline until after a term sheet is signed.
Good Answer: we have been running a robust process and we see several firms as potential leads, and your firm is of high interest to us. We are seeing a good reception and feel confident of raising the capital. We are not prepared to put you in touch with any specific parties at this time, but happy to do so and to work collaboratively to build out the syndicate if you become the committed lead.
10. Why our firm?
Bad Answer: we found it on Google Maps near another firm and wanted to fill an open block of time
Good Answer: we are friends with X, one of your portfolio CEOs, and s/he speaks highly of your firm and made the introduction. We asked to see YOU (the specific partner) in particular because of your deep relevant experience in ____ and because when we read your Medium posts on ___ they made a lot of sense.
In addition to these 10 questions, you should also expect these kinds of questions specific to your company.
1. (lots of substantive questions – what is your CAC, who are the competitors, etc.)
Bad Answer: uhh, we don’t know / a factually wrong answer / bullshit or evasion
OK answer: we will find out and get back to you (and you do get back before next Monday)
Good Answer: we already have a detailed analysis of that in the Appendix, see slides 17-21.
NOTE: as you take pre-meetings with friends or lower-priority investors, listen for questions. Every time you hear a new tough question, write a slide as an answer, and add it to your growing Appendix, so you are ready for it again in future. This will also help VCs who get into the process late to catch up, because all the questions that others took weeks to ask are already laid out in front of them.
2. (a series of probing questions)
Some investors deliberately ask probing questions as a technique to test the CEO’s business acumen. (I got a lot of that at E Ink, perhaps more than most because I looked young.) It’s a kind of stress interview method of diligence. Great CEOs know their numbers cold and are paying attention to critical details.
To pass the test, just calmly make sure you understand the question, then answer that exact question factually and *without* spin. This builds trust and confidence.
The investor may consciously choose to continue probing more and more until finally, you do not know the answer. They want to see how you handle that.
Avoid the temptation to make up a story or deflect the question. Just candidly admit whatever you don’t know. Offer to get the information, and then do so, ideally within a day. Your humility and prompt follow-through will build further trust and confidence.
