Tough Questions

In a seed or friends and family round, tough questions, in the eyes of many founders, signal an investor that will either a) never get to the writing a check part or b) be such a pain in the ass afterwards that it might not be worth taking their money.  Especially if you already have the round circled, without anyone giving you a hard time, why bother stopping for that one investor who wants more detail on how you're going to scale?

Personally, I learned an important lesson when I was raising the seed round for my startup, but I didn't learn it until we folded almost two years later...

Tough questions are a godsend.  

Running a startup is going to be difficult.  Something isn't going to go your way--product development, hiring, revenues.  Angel investor Jeff Stewart once told me that either the product takes twice as long and costs three times as much to build as your plan, or takes three times as long to build and costs twice as much--you just don't know which one.  

Whatever it was--I wish I had been better prepared for it.  My fundraise was relatively easy.  It was a party round before anyone used the term--twenty one angel investors including a lot of top names.  Everyone supported *us* and no one really put our feet to the fire.

I wish they had.  

Of course I appreciated their support, but there were so many questions I wish I would have had answered before I took anyone's money--questions that I see a lot of founders not having to answer before they raise.  There are some really great folks who are essentially cashing in their social capital, building off their character, relationships, or even just the coolness of what they're up to.  It's really not good for anyone in the long term.

Your next round isn't going to get raised like that.  In a seed round, you can get by on who you are or some buzz or social capital, but a Series A is about the kinds of plans and numbers that come out of a rigorous dedication to traditional business processes.  You may be able to get away with raising a seed round without even taking a guess around the economics of an individual salesperson, but don't attempt to raise $5mm without knowing that answer--and if it turns out not to work, why wouldn't you want to know the answer to that question a year ahead of time at your seed round?

I can't tell you how many times I've said to a founder, "I'm not trying to be a pain in the ass" when I feel like I might be the only one asking these types of drill down questions.  It's really for your benefit just as much as it is for mine.  I know the world is going to change and assumptions are going to be wrong, but if you don't have any assumptions to start with, you're going to drift aimlessly.  

Plus, if you're not the type of founder who wants tough questions, then you're probably not who I want to back anyway--so I find that going deep during the due diligence process is a good litmus test on the founder.

Because at the end of the day, you may not like the process but you need someone to have high expectations of you and to ask you the tough questions.

You want me on that wall.  You need me on that wall.