Questions We Receive From Founders
Here is a collection of the most insightful and valuable questions we have been asked by founders during the DD process.
Throughout our investment due diligence process, from first pitch to term sheet, we encourage to come at us with questions. Here are some of our favourites and a brief explanation as why we think they are important.
Q: Are there meet-ups or networking events for your portfolio companies?
Why we love this question: This strikes to the heart of our Village philosophy and one that we believe all venture funds should be trying to organise on a regular basis.
Q: How are the relationships between companies in the group? Does everyone talk regularly?
Why we love this question: In a similar vein to the last question but differentiated by how often and easy it is to connect with other portfolio companies. A critical question.
Q: Could the fund sell off shares of [insert startup name here] to a non-fund entity at any time?
Why we love this question: The continuity and sanctity of your cap table are absolutely essential for founders to consider. This should be an easy "not applicable" for most funds but you would be wise to double check.
Q: Would we be able to merge with/acquire another company to expand [insert startup name here]'s offerings?
Why we love this question: This demonstrates sound forward-thinking and this gives us a clear vision of the audacity of the founders. We prefer the "A" in "M&A" BTW though.
Q: Will the funds we receive in exchange for our equity be taxed?
Why we love this question: As we cannot provide tax advice to founders (I am sure we have startup CFOs in our readership who can help with this question), it is a good one to double check.
Q: How will you guarantee that we will keep complete autonomy in how we run [insert startup name here]? Or asked differently. Say, you disagree with a new product we create or a business decision we take, either you don't see potential or you dislike it for any other reasons. How much "pressure" would you feel compelled to put on us to change course? (We would of course be looking for input in areas where we're not experienced, it is very important to us however, to keep our autonomy)
Why we love this question: This is such an important question for a founder to ask. If the answer is "we will apply lots of pressure" you might want to consider running for the hills. At Hillfarrance, we invest in remarkable founders and their ability to make these decisions largely on their own. Whilst, we are always there to provide counsel (both good and bad), we are not investing in your business to run it.
Q: What is your exit plan?
Why we love this question: We like Founders who want to understand how our business works and drives value for our stakeholders. The recipient investor of this question should tell you about their fund life span, exit horizon and their policy for portfolio companies that do not sell within that lifespan.
Q: What are your ownership targets in the companies that you invest in?
Why we love this question: An answer to this question will give you a clear understanding of how much equity you will be giving away to this investor. Essential for future cap table planning, this should give you the earliest indications of if the buyer and seller are on the same page. Funds looking for more than 10-15% in the early stages should be treated with caution.
Q: What's your strategy of retaining your ownership until exit? How many follow-on rounds do you do?
Why we love this question: Following a similar thread to the previous question, this will give you an insight into the investor's follow-on investment policy/approach and when they typically look to cease investing into your business. V. important for your fundraising strategy.
Q: Give us an example of a time when an investment didn't go well and how your team dealt with it?
Why we love this question:
Things are well and good when the going is fine, however when it gets tough this is when you will see the true colour of your investors' feathers. Don't feel nervous about digging further on their response, this is perhaps the most critical question of the lot.
Q: With the Collaborative Carry, how does that work?
Why we love this question: Collaborative Carry is one of the things that makes Hillfarrance unique in a increasingly crowded marketplace of investors who all look, sound and smell the same 😉. You can read more about it here.
Q: How do you add value to your portfolio companies besides the capital? Will you sign up for what you promise?
Why we love this question: This question allows us to present the most exciting and rewarding part of our job - helping our startups grow. If you aren't asking this question then you go for a long, cold shower. 🥶
Q: Do you always take a board seat in your investments?
Why we love this question: Pretty standard fare but also gives you an early insight into the intentions of the investor. You don't need to add every investor to your board and you shouldn't. We wrote about this a couple of years ago.
Q: Do you always lead investments or tend to invest after a lead?
Why we love this question: Again, not rocket science but asking this question will help you determine how you prioritise this potential prospect in your pipeline. If you need a lead to get the funding process started then ask this question and get some clarity as soon as possible.
Q: What is your approach to ESG and diversity within your business and portfolio?
Why we love this question: We believe that every business and investor should have a clear, concise and demonstrable answer to this question. Feel free to ask them about how they manage diversity within their portfolio and how they seek to reduce the environmental impact of their firm and portfolio. If they don't have a convincing answer, move on.
Q: Do you charge fees to founders?
Why we love this question: We have been fighting this battle for a few years for now and are delighted that this previous trend is declining in NZ. However, it still seems to rear its head every once in a while despite our own and others' efforts to render it extinct. Simple answer: never pay fees for fundraising.