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The killer questions an entrepreneur should ask a potential investor. It’s a two-way interview.

You say you want a revolution

When meeting an investor for the first time, the pressure is on for entrepreneurs to deliver a killer presentation and create a favourable impression. This often makes you forget to ask your qualification questions necessary to judge if the investor is a good fit for your company. Use the early meetings to ensure all expectations are on the table to avoid disappointment or disenchantment later on. Here are seven questions I recommend every entrepreneur ask in the first or second meeting.

What is your investment history in the IoT sector?

While online research will help you answer this question, nothing is as insightful as having a conversation about an investor’s track record in IoT. Furthermore, as someone operating in the IoT space, you know how vast and varied this sector is. Your investor could have IoT experience but is it in your particular specialism? For instance, if you are manufacturing a product aimed at the smart home market, that’s not a good fit for an investment house with experience in industrial IoT.

What is your current investment capacity?

Contrary to belief investors have finite capital and in the case of Tern, we have finite management time too. As a rule of thumb bear in mind that investment funds tend to raise new pools of capital every three to five years. If you are in discussions with an investment house that is coming to the end of its current fund’s cycle, it probably isn’t the best time to make a new investment. You have every right to ask your contact how the investment house operates, how big the fund is, how much capital it has deployed and therefore what capacity it has remaining.

What is your decision-making process and timeline?

Investors adopt different models to select new investments. These inevitably impact how long the decision-making process will take and what the stages of the process are.

Tern PLC, for instance, allocates time for due diligence, which will include a review of the market, technology, management team and financials. This takes months but we have a structured approach and agree upon timelines at the start of this process.

Asking your potential investor about their decision-making criteria can tell you a great deal about the investor and what they value highly in an organisation.

How involved are you with the team after investing? 

Tern is a committed and hands on partner, invariably taking an active position on the Board of our investments. However, not all investors are the same. Some really only want to inject capital and turn up for a quarterly update. Indeed, others may have you communicate through an assistant. To find out if your investor can offer you the kind of support you’re looking for, ask the question early on.

When do you expect a return on your investment?

Investors are typically looking for a return within a three to 10-year period. However, there’s a big difference between three years and 10!! Discuss expectations on projected return on investment as early as possible, so that you avoid later misunderstandings. Also at this point you can raise possible exit strategy scenarios, so you know if you’re all on the same page.

How much return have other entrepreneurs received from exits in your previous IoT investments?

This is a great question for two reasons: you want to know how much equity the investors have kept (if any), and whether or not they have a successful track record in the IoT space.

Try to remember that finding the right investor is a two-way conversation. And most investors worth their salt are going to be impressed with an extensive question set and an entrepreneur doing his or her own due diligence early on.

“To find out if your investor can offer you the kind of support you’re looking for, ask the question early on”