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Good founders will ask you straight up, “Are you in?” or “How much would you like to invest?” Your best response is, “This has been great. Give me a couple of days to give it some thought and let’s talk on Monday. I might have some follow-up questions on email as well.”
When I get an email, I never go straight to the meeting. I ask how many full-time employees they have, how much money they’ve made, their funding history, how they acquire customers, and why they are building this business. The FTE and money-raised answers tell me what their burn rate is and how much they have left in the bank. Most founders think I’m psychic when I tell them these numbers, numbers they haven’t shared with me!
Okay, there are two types of businesses in my world: insanely scalable ones and everything else.
I try to choose companies based on the people running them, not the idea or market, because I’ve learned that no one can tell the future but I am an exceptional judge of talent.
founders. The goal of asking these questions is not just for you to understand the business but also so you yourself can answer four critical investor questions: Why has this founder chosen this business? How committed is this founder? What are this founder’s chances of succeeding in this business—and in life? What does winning look like in terms of revenue and my return?
“Unpack that some more,”
0. How do you know Jane?
1. What are you working on?
2. Why are you doing this?
“Why are you doing this?” The worst two answers, which you’ll hear often, are “To make money” and “Because INSERT-SUCCESSFUL-COMPANY-NAME-HERE doesn’t do it.”
It’s okay to start small, but it’s not okay to be a small thinker.
3. Why now?
If you unpack this question, you’re really asking, “Why will this idea succeed now?”
Dropbox, which launched onstage at the first year of my LAUNCH Festival and was also funded by Sequoia Capital, had the same “Why now?” as YouTube: plummeting bandwidth and storage costs.
Google was the twelfth search engine. Facebook was the tenth social network. iPad was the twentieth tablet. It’s not who gets there first. It’s who gets there first when the market’s ready.
4. What’s your unfair advantage?
“What makes you uniquely qualified to pursue this business? What secrets do you know that will help you beat both the incumbents and your fast followers?”
Why has this founder chosen this business? How committed is this founder? What are this founder’s chances of succeeding in this business—and in life? What does winning look like in terms of revenue and my return?
You’ll probably inject yourself unnecessarily into the founder’s answers, you’ll interrupt them with your minor questions instead of writing them down,
you need to let founders talk and reveal their true selves.
saying, “Can I ask you a couple of quick tactical questions?”
Tell me about the competition. How do you make money? How much do you charge customers? How much does your average customer spend? Tell me the top three reasons why this business might fail.
exactly how much money they are burning and when they will be out of cash. It’s fairly easy to do: you simply write down what their revenue is and how many full-time employees they have.
“What did your parents do?”
The reason I like to ask this question is because it bonds me with the founder.
What you need to figure out is if this founder will quit when things get hard.
Will this founder go without pay for three months, cut the free food, and ask everyone on the team to take 50 percent deferred salaries for a few months when the money runs out?
The number one reason a startup shuts down is not actually running out of money, which is what most people believe. The number one reason a startup fails is that the founder gives up.
When I saw that Apple was building the most amazing campus in the history of humanity, with a 2.8-million-square-foot spaceship-shaped building at its center, while their phones and laptops were being panned by their most loyal fans, I shook my head.
Nice start, couple of quick questions: revenue by quarter? how long has the product been in market (months)? i’ve seen a couple of businesses in this space fail over the years—why will it work this time? Best @jason
You want the people who are doing it, not the people talking about maybe doing it after you fund them.
Pro rata is the ability for you to maintain your percentage position in a company by investing in future rounds.
These days, I am most likely to tell founders “not yet” when they ask me if I’m ready to invest.
I let them know that I’d like for them to add me to their monthly updates.
Awesome, so you are making $50 on six hundred new customers a month for $30,000 in MRR [monthly recurring revenue] and with twelve thousand total, if only half of them have stuck with the product your MRR is at $300,000 total already? You have $3.6 million in ARR [annual recurring revenue]—why do you need an angel round?
So you have one signed deal and you expect 100 percent of the three hundred deals in your pipeline to close?
Send us monthly updates. Or twice a month. Fuck it, send a short weekly update if it’s concise—we want to help and we
letter.” A side letter is an agreement between the company and the investor in addition to the standard deal terms.
Pro rata rights are the ability to keep my percentage ownership in a company in future rounds by continuing to buy shares. Information rights can be broad or specific, but mine are very specific, including all key metrics, board documents, and bank and financial statements.
Continuing, in a very levelheaded way, I added, “If you try and trample my rights on this deal, I will simply not pass the ball to you in the future—but I will pass the ball to your competitors, and not only that, I will take this current deal and walk it into Alpha, Beta, and Delta ventures personally, and explain to Founder Shane how many unicorns they’ve invested in vs. you.
First, as an angel, you need to document and fight for your rights. Be
Second, as the founder of a company, you should be on high alert when a new investor or an acquirer wants you to screw your earlier investors.
“If a startup isn’t sending you monthly investor updates, it’s going out of business.”
“I would like a monthly update from you that includes the key metrics for the business, as well as what you consider the wins and losses since the last email. I would like you to put requests for me and your other investors in the email as well. Every email should have how much cash you have left, your burn rate, and when you will be out of cash so that we can all plan for future raises.”
meaningful about the business (revenue, burn, spend since our investment by month comes to mind), how you spent our money and how we might work with you to save the business?
If the startup in this example makes just $10,000 a month, their runway will increase dramatically, which is why revenue is such a beautiful thing, third to only breaking even—which is second to profitability.
If the startup is selling a product or is a marketplace, you have a very simple metric you can study to decide if you should invest again: revenue. If
What you see here is a pattern. Founders believe that one magical event is going to save the startup, be it adding a feature or a team member or a customer.
I walk in like a fixer asking simply, “What is going on?” Founders will typically talk themselves out after ten minutes or so, at which point I will ask the same question again phrased differently, “Is there anything else I should know?”
“What are you planning to do?” And following up with, “How can I help?”
