“Why should I marry you?” and other questions to ask VCs (during fund raising process)

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Fund issues

Most of us in India have not had a history of raising VC money. Let VCs not surprise you by pulling out things that might throw you or your funding out of gear. Specifically, you want a VC who is not going to use the excuses around the fund structure, life of fund or exposure to India as excuses for their inactivity or lack of interest at a later date.

Every VC fund has a set life of say 5 – 10 years, at the end of which the money is returned to the investors who invested in the VC fund to begin with. You should understand which fund is the VC investing from and what is the life of the fund. Will there be enough capital in the fund to take care of a future round of funding for your venture? Will the VC say that they maxed out on the current fund or that their allocation to India has been completed and so they will not be investing any more in the immediate future.

Likewise, you don’t want a VC who is just about to start fundraising for a new fund. Their entire focus will be on their fundraising roadshow and not on portfolio companies during the period that they are marketing the fund. If you were expecting day-to-day assistance from the VC, then you’re unlikely to get it while the VC is fundraising. You might not have the luxury of waiting till the VCs fundraising is completed, as you might have had to take care of some critical early stage decisions during this time period.

Finally, you should also understand from the VC what their expectations are for exiting from this investment and over what period of time. If these expectations don’t match yours, then this marriage might be doomed to failure.

Getting your partnership with your investors right can go a long way in freeing up your emotional and physical energy in building your business. Its worth spending time on finding the right partner and asking them the tough questions that will give you the comfort that you have the right suitor, come happiness or sorrow, in sickness and in health, in prosperity and adversity…….

If you have any questions or comments please email them to startup@iTrust.in.

The author is a co-founder of a financial services start-up, www.iTrust.in.