1. Where are you in your process?

VCs ask this question to try to figure out how much to prioritize the opportunity relative to the rest of their pipeline. Bad VCs are really fishing for whether there is heat and if others are interested. If so, they are more likely to try to get to “yes”. But even great VCs will ask this, especially if they are genuinely interested. Most investors have a process that takes a certain amount of time, but can get all hands on deck and cut that timeline in half or more if they know that they have to quickly make a decision.

If you have a term sheet in hand or know you are about to get one, you can be transparent and say you are late in the process and are looking to make a decision by X date.  If you don’t have a term sheet, my general approach is to communicate that you are early in the process. Most investors want to feel like they are in the first wave of investors you are speaking with.  If not, that can suggest that your fundraise hasn’t been getting much traction or that you are prioritizing other investors you like better.

That said, you don’t want investors to feel like it’s so early in the process they can take their sweet time. I notice some founders are trained to say something like: “We are just starting the process, but things are moving faster than we expect and we are already scheduling follow-up conversations and partner meetings.”  I wouldn’t necessarily follow that exact script, but the sentiment it communicates is pretty strong.

Some founders lay out a specific time frame for when they hope to close the round. They might say “We are just getting started, and want to make a decision by X date.”  I generally only like this approach if you have many funding options. Either you already have a funding offer from another investor, or you are profitable and don’t need the money, or you have tons of cash in the bank and are only entertaining investors because of inbound interest. In these cases, laying out a specific timeline can be effective, but be mindful that investors do pay attention if dates change and will notice if timelines slip.

  1. What are your pricing expectations?

This question helps an investor assess a deal’s level of competitiveness, as well as the likelihood that it falls into a zone that the investor would consider reasonable. Sometimes, investors might get at this in more indirect ways like commenting about other financing rounds or casually throwing out a number and watching your reaction.  In general, I think it isn’t in the founder’s best interest to be too forthcoming with these sorts of questions.  No VC is really asking founders for their guidance on how to price an investment. So throwing out almost any number will be neutral at best but probably hurt you.

The response I’d generally recommend is something like, “Our priorities are to partner with the right long-term investor at a price that is fair in this market.” If an investor throws out a legitimate price and asks you to react to it, I think you want to say that it’s lower than the other feedback you’ve heard, but if that’s what they think is market, you are open to considering it in the context of the other deal terms.

The goal during the fundraise is to get firm offers from investors at prices they deem fair. Until you have a term sheet or two, it doesn’t make sense to close any doors, since the more people you can bring to the table, the more leverage you have to drive an acceptable deal with the best potential partner. Also, the best investors are not always the highest bidder, so coming in too aggressively around pricing expectations may cause you to eliminate your best potential investor because they don’t want to overpay.

  1. What are your existing investors going to do in this round?

Investors ask this sort of question for two reasons. One is to fish for weakness.  If for some reason an existing investor that would normally follow-on in this situation isn’t participating, there is usually a longer story that the new investor wants to know about. The other is to make sure that the round dynamics are such that the new investor is going to be able to get an acceptable level of ownership in the new round.

The tricky part of this discussion is that existing investors often aren’t that crisp about what they want to do in the new round. Most existing investors would want to know who the new lead investor is and what price they are proposing before giving a specific answer about their desired allocation.

My recommendation is to figure out ahead of time whether your existing investors will be writing a check assuming a new outside lead.  You don’t need to get them to commit to a specific number, but most of your investors can tell you if they are going to write a check, and if they are looking to do way more or way less than their pro rata amount.

If one of your larger investors wants to do way more than their pro-rata, this could create issues around a new investor getting their desired ownership. This is something you should figure out, and will be the subject of a future post. If for some reason one of your major investors is not going to be investing moving forward, that probably will take some explaining, and will be the subject of a future post as well.

  1. What are your goals for this business?

Not many VCs specifically ask this question, but many investors are trying to get cues about how a founder is thinking about building their company. Are they likely to sell relatively quickly at a good, but not great, price? Are they going to try to raise lots of money as quickly as possible?  Are they going to prioritize profitability or growth? Etc.

These questions are all about alignment. The investor is trying to establish whether there is likely to be a mismatch in expectations down the road around growth rate, burn rate, or the ultimate exit.  From a founder’s perspective, finding this right alignment is super important too, and so there should be a balance struck between answering in a way that maximizes optionality, and having a candid conversation on this topic.

When pitching VC’s, I think founders should make it absolutely clear that they are building a company that they think has long-term potential to be of significant scale – at least hundreds of millions of dollars in revenue and billions in enterprise value.  Also, you should clarify that you are shooting to achieve the full potential of the business, and are not looking for a quick flip.  If this is not something you are comfortable pitching, you should not be approaching venture capitalists because your expectations will be misaligned.

Beyond the question of the ultimate potential of your business, different investors will have different points of view on some of the other elements of company building.  Some investors will be more comfortable being aggressive about burn, others will be more focused on profitability. Some investors would love it if you never raise capital again, some will expect that if things go well, you ought to be raising again in six months.  I think engaging investors on these topics in the interest of finding the right fit is fine.  But I’d recommend holding your cards a little close to your chest, at least initially, in the interest of maximizing options prior to committing to any one investor.

Hopefully, this post helps address the most common tricky questions that founders tend to encounter during a fundraise. This isn’t comprehensive, but are the types of things that I think come up over and over again that experienced fundraisers tend to handle easily, but less experienced fundraisers tend to stumble on. If there are other common tricky questions you’ve faced, feel free to send me them on Twitter @RobGo and I’ll try to follow-up.