We raise growth capital for tech companies, so I spend a lot of time with CEOs who are choosing a new investor from between Firm A and Firm B.  Picking your investors is a critical decision that has long-term consequences.  Given the investors are often future Board members; you may be hiring your boss.

While the investors are busy scrubbing your background with calls to former colleagues, customers and classmates, you need to make time to do the same to them.  The sources of information on your potential investor include: (i) the investor, (ii) the references the investor provides (usually happy portfolio CEOs) and (iii) references you discover (often less happy portfolio CEOs).  In this post I will discuss the first group.  I will follow this with a future post on questions for portfolio executives.

If the Partner (“GP”) and his or her firm have made it to the short list, you already have high comfort with the people and firm credentials. Despite the camaraderie of the investor dating process, you need to ask some direct questions to get the best outcome.  A few key topics to cover with the General Partner include:

Are you going to be taking the Board seat your firm gets in this financing? This sounds obvious, but a busy GP might try to staff Board with a junior member of the firm for bandwidth or training reasons.

How many Boards are you on right now? Does your firm place a limit on number of Boards per Partner?

How much capital are you reserving for future investment in my company?

Is your firm planning to raise another fund? Are you staying on for that fund? Are you the point person in the firm for fundraising?  This last one is a bandwidth question.  Fundraising can be time-consuming, even for firms with longevity.

What is one specific thing you can help us achieve? Can you point to another company where you achieved that result?  You may favor an investor because she has operating experience in channel sales. Test to validate that her experience translated into helping a portfolio company build a channel strategy.

When did you raise the fund that will contain this investment? If you are getting capital late in a fund’s life, the investor has a shorter hold time.

What fees, if any, do you charge portfolio companies?  Investment firms have expanded the services – recruiting, operational consulting – they provide the portfolio.  Ask how these services work, both in requirement to use them and any related fees.

How often do you recommend holding Board meetings?  This question gives you a gauge on likely behavior.  An investor who is fine with quarterly meetings, every other one via phone, is a passive investor. One who prefers scheduled weekly or bi-weekly calls is hyperactive.

Make the time during this hectic process to place these diligence calls.  Ask the above generic questions.  Ask your specific questions about the investor’s connections in your sector / geography, etc.  Making time to ask the questions will help you decide the right investor fit.  It will also set the expectations for both sides so the working relationship is off to a better start.