The 8 Questions Investors Think About You

One major problem I see with founders when they try to fundraise is that they often lack substantial information on what investors look for in founders and founding teams.

Investors will rarely tell you exactly why they do not like you. Instead, they may give you generic rejections that mean little to you.

However, there are about 8 main concerns that investors typically have, and if these concerns come up frequently or you cannot address them effectively, investors may reject your outright.

These are the same questions every investor will think in their head or discuss with their colleagues about you.

Here they are:

1. “I can’t get conviction on the CEO”

This is the single most important reason why an investor will reject you. It is the hook that decides whether you are worth investing in and continuing to speak with.

As a founder/CEO, you are the face of your company, and an investor recognises that you are the most important person in the company. Regardless of how good your idea or product is, if the investor does not find you compelling, they will not invest.

On the other hand, a compelling CEO who investors love can secure investment without having a great idea or product. This illustrates the importance of CEO conviction is to an investment.

This same presence will allow you to raise more money, attract top talent, sell to customers, build partnerships, give great press interviews, and more. Your ability to be a great leader is the most important factor in determining your success, and in due, the most important factor on whether you will get an investor to part way with their money.

This is why a fundraising is as much a job interview as it is an investment into your company; you need to show investors what makes you great.

To clarify, you don't need to be extroverted to succeed in fundraising. It depends on the industry and what you are building. For example, Sam Altman or Larry Page are not the most extroverted salespeople in the world, but they were able to effectively convey their complex ideas to investors during their fundraising rounds. Whereas someone building in a consumer focused industry, it doesn’t make sense for them to be introverted technical geniuses. It's less about being extroverted/introverted and more about being exceptional for YOUR industry.

You can see more on what investors look for here.

2. “The founders aren’t in this for the right reasons”

I always emphasize the importance of showing investors that you are mission-driven. One of the reasons for this is to ensure that investors know you are building the company for the right reasons, and that you have a strong enough passion for your idea.

Every startup will inevitably face difficult times, and it's crucial to have the passion to keep going during those times. Investors are acutely aware of this from their experience with portfolio companies and are always on the lookout for it.

At Octopus, we refer to this as a founder's "North Star". If we didn't believe a founder had a "North Star", we knew they weren't in it for the right reasons. That's why it's essential to start by focusing on the deeper reasons why you're starting your company and why you can continue even when things get tough.

While making money is undoubtedly a significant factor in building a business (one unicorn founder we backed even stated that this was his primary motivation!), it can't be the only one. Without having experienced the problem yourself, being close to someone who has, or having a deeper reason for building your business, you will likely fail.

Another issue I've seen is founders implying that they see themselves doing something else. This is a significant concern for investors, as they don't want to see a company they've invested in lose its leader. There's a difference between knowing you'll need a proper CEO in the future to make the company better and knowing you're not in it for the long-term and don't care much about what happens to the company. Don't be the latter.

3. “The founder is lying to me”

Unfortunately, this is more common than you think it is. Most investors have had reality hit them in the face by being lied to by founders.

This can be lying about:

• Your revenue
• When you are actually cash-out
• Which advisors are actually helping you
• What the real metrics of your company are
• What your product can/could potentially do (Elizabeth Holmes comes to mind here, there’s a reason no VCs invested into her!!)

The investor-founder relationship requires honest, open communication. Without it the relationship is useless. So if a founder is lying, either outrightly or with white-lies about where the company is going, then an investor will never want to invest.

A great example of where this commonly happens, is directly after an investment. Some founders will be dilligent with the information they give to an investor during the round, but as soon as the money hits their bank account, they are a ghost. The investor then never knows where the business is, or where it is going. They have no clue if that investment was good, or bad, or even if they could help.

Another one we unfortunately saw at Octopus was a company we were about to wire the money to. We had signed a term sheet and everything, but during our last bits of financial DD we (thankfully) found out the founder had been lying to us, and that their revenue was about 10% of what they stated. We of course rescinded the investment, and the company failed shortly after.

Investors are acutely aware of founders lying to them, so are always on the look-out for this. Never lie outright to an investor during your round.

4. “There is a problem with the dynamics of the founding team”

The investor's perception of you or your team's dynamics is another reason why they may choose not to invest in you. Even if they don't explicitly state it (as it can be difficult to explain), if the investor doubts that you will work effectively together in the future (or even now), this can be a major red flag for them.

Examples of negative dynamics in the team can include:

• Too many co-founders (usually more than three)
• Co-founders who aren’t actually in the business day-to-day
• Tension, awkwardness, or discomfort between the founding team
• A CEO who belittles or doesn’t delegate properly to other members of the team
• A married or dating founding team (not always a red flag, but many VCs consider it to be one)
• An experienced big corporation founding team but who don’t have any actual startup experience
• Co-founders without proper roles for each of them, e.g. they are all co-CEOs (saw this many times)

Although investments have been made in founding teams who possess one of these above team dynamics, it is still less than ideal to have them. If you believe that your team has three or more of these traits, then you are in a bad position and are very likely to be rejected.

5. “I don’t like this person”

One thing I see founders always forgetting is that getting investment for your company is not the end. It is actually the beginning. The beginning of a potential decade long journey of building your business. You will have many ups and many many downs.

Investors know this. They are in it for the long-haul, and if they find that they don’t like spending time with you, they could still potentially not invest.

If there is a lot of tension with how you communicate and work together, an investor will reject you outright. It’s just not worth the risk of you not working well together in the future if you can’t even see eye-to-eye in the first few meetings. They have to make sure they love you before they can invest.

Another thing which is fortunately not common (but I have seen it myself!), is if we think you are frankly a bad person. This can be sexist or racist remarks, rude to team members, or merely don’t have the right moral compass when it comes to regulations or helping people.

I remember a defence type company coming in for a second meeting with my fund. We thought the idea was interesting as their main premise was to help people in need. However, half way during the meeting the facade of the founder slipped, and he went into how he really felt: this could be used for war, spying on citizens better and ultimately bought by authoritarian regimes.

We obviously decided this didn’t quite fit for what we wanted to do with the fund, nor was it the type of person we wanted to invest into, so we rejected it instantly after that meeting.

6. “The founding team lack focus”

This was a very common comment in my fund, especially during the Seed stage (but also at Series A!). Many founders try to do too many things at once, which can be detrimental to several aspects of the business. This could include:

• Product (trying to build too many features)
• Business model (trying every pricing model under the sun)
• Go-to-market (trying to launch all the different types or ways instead of what’s best for you)
• Team (founders who aren’t fully committed to the business and are juggling 2-3 jobs at a time)
• Operations (if you aren't purely tech-focused, most of your time may go into your services business).

9 times out of 10 a founding team who lacks focus will be pulled into too many different things at once, and will become distracted. Usually causing the company to fail in due time.

7. “This person has been referenced negatively”

Investing in a founder is all about trust. Investors know that the founder's actions will ultimately determine the success of the company.

Therefore, a major part of an investor's decision-making process is ensuring that the founder is trustworthy. When I was looking to invest in a founder at Octopus, I always asked for founder references. Although these references were a great start, I knew that they were selected by the founder themselves.

To ensure due diligence, I conducted my own research to find additional references. These could be previous colleagues, subordinates, or superiors. I wanted to find out what everyone had to say about the founder, both good and bad.

If we found out that the founder had a lot of negative references (which happened more often than you might think!), we would reject them outright. Even if the references provided by the founder were glowing, if our own research revealed that 90% of people had negative things to say about the founder, we knew the true story.

8. “This team is missing a key person”

This is a classic chicken-and-egg problem. Founders need to raise money to hire great people for their teams, but having great people on their teams is what enables them to fundraise. This is particularly true in the earliest stages when you may not have a built product or significant traction.

While a lot of the time this can be solved by showing an investor the people you will be hiring, your own strengths in beating this lack of knowledge, or the confidence that it's already been solved, occasionally this just isn't possible.If an investor truly thinks your founding team lacks a skillset that is critical to the business, then they will most likely reject you.

For example, when I was investing at Octopus, I focused on health. We came across hundreds of health companies that didn't have a single health expert on their team. You could see they didn't understand anything about the industry in terms of what it really needed, how the products worked within the systems, nor how patients themselves would use them. This almost always showed that the company was building tech for tech's sake, not to help the healthcare system or patients. And 9.9999 times out of 10, this company would fail because of it.

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Once you know these 8 major questions investors think about you, you can make sure they never think negatively of you with any of these going forward. Because if they do, they will almost always end up rejecting you.