Learning From the Smart Money: What VC’s Ask Startups (And Good Stuff Generally)

ICYMI – Article originally appeared in 2015…. updated and revised for 2018!

While getting my daily dose of Quora this morning, someone posed the question “What are the Top 5 Questions a VC should ask a startup?”  Lots of good responses are in there, but Patrick Mathieson @ Toba Capital really had a great response.(Really suggest you head over to read directly)  While Patrick’s response is geared towards the startup / VC world, his response really has broad application across mature companies as well.

Here’s the thing: these points are geared towards pitching a company to a VC.  But aren’t they really metrics that, if you are a rockstar and really have your finger on the pulse of your company, you should just know?  Of the 8 that Patrick listed, I’ll point out (and paraphrase) a few in particular and comment after:

“Talk us through the fully burdened unit economics of your product or service.” 
This is just pure awesome-sauce.  Whether you sell widgets or hours, how well do you know the economics of your product?   Having a deep understanding of unit economics implies you have a  handle on the rest of your financials.  It’s an actionable data point.

“How Quickly are revenues growing? What is fueling growth? What are the bottlenecks?” 
One of the most frequent comments we hear is “this business would grow if we just had some money.”  (This is also a topic worth of about 75 more posts…).  But here’s the thing: how clear are you on what you would do with that money? How much money?  With X in additional capitals, how much would your growth rate accelerate?

“How do customers think about their ROI on your product?” 
Think about this one for a moment.  Most often management is considering ROI on their actions.  But thinking about ROI from your customers’ perspective is a powerful tool.

“Big Big is your market? How fast is it growing?”
This is an interesting one.  The size of the addressable market becomes more important as potential deals get bigger.  Running a dry cleaners?  The size of the market is important – but it will be defined in blocks or miles, not $billions.  And because of that, no one will be rushing to write a 10- or 11- figure check for the dry cleaners.  But if you are thinking about an exit that size, you better start thinking about how big the market is.  Why?  Simple: the folks that can write those checks need to a big enough market to grow into and realize a return on their investment.

So.  Great stuff from Quora again.  And it’s always a good reminder that although we don’t often swim in the startup world, it doesn’t mean that there aren’t some great things to be gleaned from those that do.



Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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