On Friday, I spent a couple of hours at my alma mater talking with student entrepreneurs about their companies. When I got there, most of them wanted to know how VCs pick their investments and what 500 Startups look for.
I didn’t answer this.
Instead, I said, “Let’s pretend we’re all forming a VC firm right now. And there’s an entrepreneur coming into the room in 10 minutes. What questions would you ask him/her to decide if you’re going to invest?”
I wasn’t sure what people would come up with, but here’s the list of questions the group collectively came up with in 10 minutes with my commentary in brackets:
Team
- Do you have a strong team? [Get more specific – what does that mean?]
- Does the team have particular domain knowledge or expertise?
- Have the co-founders worked together before?
- Can they change directions quickly if needed and make fast, difficult decisions?
- [What about perseverance, grit, tenacity?]
Customers and traction
- Do they have product or market fit? [Get more specific – what questions would you ask to figure this out?]
- Do they have customers? How many?
- Who exactly is the customer?
- Are they paying? If so how much?
- How frequently are customers buying or using? [Or churning]
- How much does it cost to get a customer?
- What is a customer worth? [lifetime value]
- [How much revenue are you making and how has this changed over the last few months? What are your margins?]
- [How are they getting customers? What customer acquisition channels have they tried or not tried ?]
- [Is this growing? How quickly?]
Market
- What is the market size? [I have disputes about this one but that is a topic for another post]
Problem and solution
- What specific problem are you solving?
- [Why are you doing this? Motivation?]
- What makes your solution unique or differentiated?
- Is there any special tech or IP here? [In many cases, probably not worth asking]
- What is your unfair advantage? [Often there is little-to-none in the beginning but worth asking about this to see how entrepreneurs think about this and see if there is special domain knowledge or special relationships & partnerships]
Other
- What is the cost of equity ownership? [May or may not ask this depending on if our hypothetical VC firm leads rounds or not]
- [What is a team’s burn rate?]
Obviously, if we had brought in a real entrepreneur to talk with, the list would also include more specific questions about the particular business and/or how the product works.
I was pretty impressed by this laundry list of questions they generated – not bad for 10 minutes! It looks like I can go retire on a beach somewhere.
