7. What are the plans for future funding?
You have to be certain about sources of revenue of the startup and its operations. You ought to ask the owner how they plan to collect funds in future after the company starts growing. You may not be in a position to offer additional finances for the company. Other than the option of reinvesting part of profits, the company can raise funds through loans for executing its future expansion plans. Generally, it is not difficult for a startup to raise funds if it has gained the confidence of its customers, offering it steady revenue. You need to be aware of the company’s arrangements for raising additional funds that it will require in future.
You must decide a clear exit policy for yourself. You should invest in a manner that you can withdraw your funds after a specific period of time. This period of staying invested with the company should be formally recorded in the paperwork concerning your investment, else you money may get locked for long or indefinite period. You should know timeframe for distribution of funds. You should really understand the return on your investment at the time you opt to exit. Scrutinize the calculation of the owner offering you a deal and the rights that you get for making your investment.
9. What do the sales and revenue (financial history) till date indicate?
Do not be in a hurry or get emotional while taking any investment decision. It is worth spending your time to study the present financial statements of the company to know if it has earned any profit so far. Also go through its revenues and sales projections. Financial statements would also reveal assets and liabilities of the company and its development expense. You should not rule out the possibility of the owner having prepared false documents just to prompt you to invest in their venture. Should you be unable to read and interpret the financial statements, hire the services of a professional to understand the financial data and point out any flaws. If the professional approves of the statements and find them to be genuine, you may proceed further on feeling more secured of your investment.
Other than the abovementioned questions, you must inquire about the experience and testimonials of the team managing the venture. Check that all the legal papers are in place. You should be informed of the allocation and outgo of funds, who are the advisors as well competitors of the firm. You’ll be within your rights to ask all these questions and part with your money only after you are convinced of the success of the venture. After all it is your hard-earned money that you are investing.