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What are the questions to ask a private investor (pre-seed)?

What questions do you have for a private investor that is pre-seed?

Advise me a little on the pro-con list here. Steve is in his late-40's, ran a company similar to mine with an even more similar flavor and vision when he was in his 30's. We see eye to eye on technology, and whether I'm a good opportunity for him to make ROI or to relive his glory days vicariously through me, it goes both ways since I want someone with the right passion putting steam into the engine.

He's not an institutional investor. He's probably not accredited (and if he is, it probably would be to fulfill regulation).

I don't need his capital, and my intuition says that the deal will fall around 100k. My seed round should be 1M. His exit point would be around Series A.

Now imagine someone in your space with the expertise enough that you don't need to dumb stuff down and a passion similar enough that you can say what you truly feel. You're at your first sit-down, what questions do you ask to vet him or her?? Like any date, what do you do to break up the meeting (everyone is different, but think golf, event, etc.)??

7 Replies

Peter Weiss
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Peter Weiss Entrepreneur
President at American Outlook, Inc.
Mike, if he's not accredited what are either of you doing discussing a $100,000 investment in a what is probably a highly risky, illiquid, long-term investment? This seems like exactly the kind of situation the accredited investor rules are designed to address. In the situation you describe where you don't need the capital and you seem to be thinking of an institutional round you are creating a bunch of issues for the future, not least of them being I can't remember a Series A where the investors permitted the redemption of a substantial investment from an early investor.

I may be missing something but there are warning flags all over this situation.


Ken Hollowell
0
0
Ken Hollowell Advisor
Ken Hollowell President/CEO at Profran
Do you have the required documentation that allows you to offer equity? Do you know exactly the types of materials an investor want to receive and read? If not, call me at [removed to protect privacy] Ken
Jon Lunsford
1
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Jon Lunsford Advisor
Advisor at Centerpost Holdings
Hi Mike, I think all your questions fall under the general headings of a) what does he want out of this? and b) what do you want out of him? Onviously there is an art to asking these questions tactfully. But in the interest of keeping this short I won't try to be specific about that. From his standpoint, how does he envision his participation: passive investor, interested board member, active employment? You want to hear him say he wants but you also need to listen for what he really wants, emotionally speaking. Intellectual stimulation/vicarious pleasure? Engagement? Is he one of those people that wants people to hear him talk? What are his expectations for the company. Are there any hidden agendas? Which of his relationships does he see as relevant, if any? Why? What does he expect in the way of being consulted? What if you and he disagree? Does he become a nuisance (or worse)? What rights is he seeking? How much of this has he done before? How did that go? When he was in your shoes, did he have any investors such as he wants to be? How did that go? From your standpoint, how can he help you? Who does he know that can advance your agenda? What subject matter expertise does he have that is relevant? Does his involvement confer credibiity on your organization? How so and with whom? If he got what he wanted how much of a check could he stroke down the road? In general, what other potential investors does he know? Is he willing to invest without any specific rights to approve your decisions? What other companeis has he invested in? If he envisions a close relationship who can he refer you to in order to get a sense of how that went. Do you know anyone in common that you particularly trust? I recommend lunch as a first step. It's professional but limits your time commitment (and his) while giving you and he enough time to size each other up. Finally, you mentioned a seed round and speculated that he may not be an accredited investor. Those are important considerations. If you are expect to make an offering of securities you need to think of him in this context as nothing happens in a vacuum under securities law. Happy to discuss. Good luck! Jon Lunsford 9702 Gayton Rd Suite 245 Richmond, VA 23238 [removed to protect privacy] [removed to protect privacy] www.linkedin.com/in/jonlunsford/
Peter Stone
1
0
Peter Stone Advisor
Attorney at Hopkins & Carley
If you don't need his capital, and it's his expertise or connections or both that you want, don't make him an actual investor. Points are precious. There might be a securities exemption available, but don't use it. Instead, prepare to take him on as an advisor who will get a vesting option on common stock (small)l. "Prepare" in that you should spend enough time with him up front to be sure that a) he's someone that you would value highly in that role - otherwise don't waste your time, and b) he will commit and follow through.
Mike Whitfield
0
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Mike Whitfield Entrepreneur
Sr. Software Engineer, EPAM, Google
Great grains of wisdom, thanks all.

Accreditation seems like a trivial roadblock. He ran a 10M revenue/annual company many years ago. According to my galpal, 100k could be a drop in the bucket for him. A similarly classed investor who is an ousted CEO for a mid-sized data company is trying to push a maximum of 500k, however.

We want 1M, obviously, but we want the name of a firm with credibility to lend well to a Series A to do that with. A private investor would be someone willing to go on the vision quest with us prior to seed. He would help us battle through the market erosion that turns bright ideas into boring dull muskrats.

I need to structure the offering to him so there are options. 100k would be a starting point with his involvement. I imagine he could try to go big for a slightly different set of expectations in influence over direction. Likewise, I could see him getting cold feet at which point the ask for money would go slightly above 100k and I wouldn't offer him such a competitive valuation.

I have a lawyer but no long-standing relationship where I can trust this sort of circumstance can be protected and representative of my orientation just yet.

We don't have a term sheet ready to go but we have most of our metrics laying around in spreadsheets that investors want to see which would form the basis for any acknowledgement of where the ship is headed.
Mike Whitfield
0
0
Mike Whitfield Entrepreneur
Sr. Software Engineer, EPAM, Google
Re: his exit, I expect seed funds would cover it but our revenue figures should cover his exit as well by the time we are raising Series A. The biggest consideration would be that Series A would see an increase in company shares and a decline in liquid assets (cash).
Xanh Tan Nhanh
0
0
Xanh Tan Nhanh Entrepreneur
Student at KC
Hello!I'm new start-up! But i don't know how to find out seed?
Can you please tell me another way to have seed from strange people, special via internet!
Thank!
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