Screening Meeting: 3 Dozen+ Questions You Could be Asked About Your Startup
As Managing Director of an angel group, I review approximately 400 executive summaries per year.
Those companies which pass this initial filter are invited to discuss their opportunity further in a teleconference meeting. The purpose of this meeting is to take the next steps in determining if the company meets our group’s investment criteria.
Our group, like other angel groups and VCs has criteria within which we invest.
This criterion has been established based on the wants and needs of the investors in our group. They are based on factors such as our risk profiles, our expectations of returns, our experience and familiarity with the different sectors and industries, our access to experts, our portfolio needs along with our personal and the group’s social and philanthropic objectives, to name a few.
The fact is, to get invited to participate in the screening meeting means the review against our group’s criteria has already began. All investor groups do this early filtering by listening to elevator pitches, attending pitch events and reviewing executive summaries, etc., to determine if the venture has a fit with their member’s needs.
This filtering addresses questions such as:
- Where is your business located?
Is it in the geographic area in which the investors have an interest in investing?
- Does the stage of your company’s development appear consistent with those in which the group desires to invest?
- Are the entrepreneurs pursuing an opportunity within one of the sectors and industries in which they have an interest?
- Does your management team appear to possess a group of strong, diverse and passionate members?
- Does your company appear to have an opportunity to create a sustainable competitive advantage and will it provide exceptional returns?
If so, the company may qualify for further screening. However, beware; the questions get more difficult because they get more specific. In the screening meeting, the company may be asked the following, beginning with the potential of the opportunity:
- Is your product or service unique and scalable?
- Is the market opportunity for your product or service large?
($100.0M revenues not $5.0M revenues)
- Is your business model well developed and are you able to clearly and crisply articulate the value proposition?
- Where is your product or service?
In the concept, Beta or commercial stage of development?
- Is the IP upon which your product or service is based imbedded in the company?
While the idea is important, and the stage of development of the product or service and its scalability and value potential is critical to the group, so is the team. In fact, a fabulous idea and business plan/model, without a team to execute is really nothing more than an idea. As such, the screening will focus on the team and its potential to execute. To help assess this, the following questions are possible:
- What is the make-up of your management team?
Are they part-time or full-time? Do they have a history of being able to execute?
- Are your team members comfortable with the investors conducting background checks?
- What are the salary expectations of your key management team players, post funding?
- Are there multiple members of any founder’s family on your payroll?
- Is your company’s advisory board active?
Assuming the investors are satisfied with there being a potential to execute, they will potentially migrate to operations questions which will help validate these assumptions. Such questions could include:
- Are there any governmental regulations which may result in extending the runway time to commercialization of your product or service?
- What is your company’s current cash burn?
- How much cash does your company have on hand? Based on the cash on hand, how long is your runway?
- What is the timeframe in which you expect to be cash-flow positive?
Detailed questions related to the financial returns and their potential participation are also likely to be addressed in any screening meeting. The investors will desire to become comfortable with the portion of the company they are acquiring and the related rights which will accrue to them as investors therein.
- Does the opportunity have the potential to provide investors a return of 8 to 10 times their invested capital in three to five years?
- What level of funding is your company seeking?
Are you seeking early stage investment from individual angels and angel groups, a Series A round, a Series B round?
- How much funding are you raising?
- What will you do with the funds raised?
- Are you offering convertible debt, common or preferred shares?
- If you are offering convertible debt, under what terms are you offering it?
What discount are you offering? Is there a cap on the future valuation to convertible debtholders? Are you offering interest, and if so at what rate?
- If you are offering equity, under what terms are you offering it? What shareholders rights are to be included in the offering?
- What is your company’s pre-money valuation?
- Do you have an employee options plan?
- Describe the Cap Table.
- What investment do the founders have in your company?
- Do anti-dilution rights accompany the equity of any equity holder?
- Does your company have a lead investor for the round?
Are you open to providing a Board Seat? Are you comfortable providing board observer rights?
- What is your company’s legal structure? Is your company a LLC, a C-Corp or something else?
- In what country, state/province is your company registered?
- How much Debt does your company have on its Balance Sheet?
What are the terms of your debt?
Finally, the investors will want to understand the objectives of the founders. If the investors are hoping to cash out in three to five years but the founders goals are to build and operate the company over time, their objectives will not be aligned. As such, the following becomes critically important:
Should the entrepreneur be well prepared, demonstrating such with their answers, and following the meeting should the parties conclude that there appears to be a mutual fit, the potential for follow-up discussions exists. It should be noted however that if that fit is not there, it does not necessarily mean that the project does not have potential or the founders can’t execute in the minds of these particular investors. It simply means there was not a good fit between the parties. The entrepreneur should simply work hard to find other investors where a better fit may exist.