How to Reverse Interview Investors

[swyxio]

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subtitles: Good Questions to ask an Investor as an early Startup Employee tags: careers, advice, investing category: note slug: investor-questions cover_image: https://user-images.githubusercontent.com/6764957/216241922-da658bb5-7aec-4da2-814f-498094196aba.png

I honestly never expected this to be a topic that was common enough to write up, however, it suddenly hit me today that it is the ultra niche topics that deserve writing up since it is the stuff that is outside the usual SERP riffraff.

Context

Most employees joining a company see a job description, apply, get the offer, and then have to make up their mind whether to join based on just the info they get through this process. However, when joining an early stage (say series B and below) startup, it's possible, even wise, to obtain more information on the company before joining, especially since it is much more uncertain what the future of the company will be (I have had friends laid off 3 months after joining a startup because they pivoted) and there's a lot less public data about the company and its founders (so you can't, say, look up their revenues, or customer reviews, or glassdoor reviews).

One way that startups have been helping prospective employees through this information gap is offering interviews with their investors. There are multiple good reasons to do this:

1. the investor is almost definitionally the most bullish person in the world on the company outside the company,
2. the investor wants to "add value" to their founders by helping to "close" you as an employee,
3. the employee gets special access to their investor (sometimes boardmember) that they would not normally have, to network or see things from their vantage point,
4. the founder gets a very small chance that some red flag is caught by the investor and the opportunity to prevent a mishire.

The more in-demand, and senior, you are, the more likely you'll want to do this anyway to collect info about the company and for them to be comfortable with you (if things go well, you'll be seeing them at board meetings soon enough).

I've been through this process twice now, and today was asked by another friend going through the same thing. I realized that this is an underserved topic in career advice since very very few people actually end up going through this process.

TLDR

This was my answer:

An expanded version follows.

Questions

• The Investment Decision.
  • Why did you invest?
  • What did you find during diligence?
  • What did you struggle with the most before committing?
  • How was valuation decided?
• Current state
  • Founders: What are their best qualities? Who do they most closely remind you of? What do you perceive as their biggest flaws?
  • Information: What have you learned about the company since investing, good and bad?
  • Risks: What do you think is the riskiest assumption of the company? How can we validate that assumption?
  • Market: What is attractive about this market? What do you like about the customers, how do you view the competitive landscape? (they've likely done an extreme amount of research here, take notes)
• Future
  • Base case: What metrics are you/the company looking for to reach the next round? (in the short term this is the ballgame you are choosing to play)
  • Best case: What metrics would make you pre-empt the next round? (just fun to ask if the investor is particularly in love with the company)
  • Worst case: What metrics would make you recommend a pivot? (this is probably most likely scenario for early stage companies - watch for unusual honesty)
  • Exits: If the company was to be acquired, who would be the natural buyers and why? (speculation yes, but useful info on how the investor views this asset regardless)
  • (good ending question) What is the most ambitious potential of this company? Where does this go if everything goes right? (assess if this excites you)

Ultimately, these are just a very generic set of questions for you to start from. There's only one binary decision to be made by the time you reach this stage - join, or don't join. Have extreme focus on asking questions that will help you make that single decision; everything else is fluff.

Let me know in the comments if you can think of other questions suitable for investors.

[swyxio]

i also keep an ungroomed list of founder questions, in case anyone wants to broaden out https://github.com/sw-yx/brain/blob/master/R%20-%20Better%20Questions/startup%20questions.md

[swyxio]

more questions to analyze companies: https://www.thediff.co/archive/100-due-diligence-questions-checklist/