8 Questions to Ask as a Startup Founder Before Signing a Term Sheet

Photo by Ashkan Forouzani on Unsplash

A version of this article originally appeared in Forbes.

People often ask me what traits I look for in founders. As I recently told GGV’s NextGen Fellows, the ability to be an incredibly fast learner is one of the key things that can set founders apart. 

It’s really hard to build a startup into a successful company, and the phases change so rapidly that nobody is born with or has all the requisite skills and experiences to achieve at every phase of growth. 

For a founder to be successful as a leader of a fast-growth company, she or he needs to recognize that their job will keep changing—at every phase, the job and what’s required changes. No one knows everything they need to know on Day One. And so you’ve got to be a really good learner.

That said, I also like to remind founders to consider these eight questions before they sign a term sheet.

It takes time to find the right VC partner

In general, founders shouldn’t settle for the first VC partner who offers a term sheet. Instead, focus on finding firms with a long-term vision that complements your own. After all, it takes a long time to build enduring companies—there really is no shortcut. 

Though the pace of innovation hasn’t changed, some investors’ strategies may end up shifting. For example, some seed-stage investors have been pushing to sell their positions as early as in the Series B round. When a firm you’re hoping will stick with you ends up selling early, it can be disruptive and put a lot of pressure on your company. Founders then face the burden of filling that hole as their existing investors retrench.

When choosing VC partners, ask yourself: 

  • How aligned are your objectives?
  • Does this firm have a long-term perspective on my sector?
  • How will they be able to help me scale as a founder?
  • Will they still have my back if we decide to pivot?

The bottom line: Building companies is a long-term game. Think twice about who your partners are, and find a VC partner who you have good synergy with. 

Not every dollar is equal in the VC landscape 

Founders will always be on the front lines of building their companies, but partnering with the right VC firm can help accelerate your chances of success. 

VCs can either roll up their sleeves—or just write a check. Some VCs will throw money at a company, and you’ll never hear from them again. Unfortunately, that model typically doesn’t set up a company for success.

Other VC firms can offer value beyond cash. From helping to recruit a go-to-market team to giving feedback and advice, a VC firm that’s all in can make a big difference for founding teams. You may be experts in building your product, but what you want is a firm that can pitch in (as needed) with other functions like recruiting, marketing, communications, data, and business development. 

When checking references for potential investors, ask a VC firm’s existing founders: 

  • What is this firm like to work with?
  • In what areas did you ask for help, and what were the results?
  • How did this VC act when things weren’t going as well as planned?
  • Would you work with this VC again on your next startup?

The bottom line: Look for a VC firm that can provide support in the areas you lack. Many firms now not only offer access to their investment team but also expertise from their operations and Platform Services teams. Like the pieces of a puzzle, you want to find the perfect founder-VC fit.

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