Early Investing

Mailbag: Three Essential Questions to Ask Startup Founders

Mailbag: Three Essential Questions to Ask Startup Founders
By Early Investing
Date August 18, 2019

Q: What are the first three questions you ask a founder when you’re researching an investment?

A: Question No. 1: How’s your plan going? This question is important because it gets right to the heart of things. How the founder answers will tell you a lot about how confident they are in their startup. If they claim that everything is peachy, but it doesn’t seem like they’ve actually accomplished much, steer clear.

Question No. 2: What opportunities are you most excited about right now? I usually ask the founder to discuss a few different ongoing projects at the company and how they will affect the business in the long run. This allows the founder to demonstrate their knowledge of different areas of the business (or a lack thereof).

Question No. 3: Why did you start this company? The answer here is very important. If the answer is that they needed money, or thought getting into a new industry sounded cool… that’s not a good sign.

Good founders will be passionate about the industry they’re in and the business they’re creating, and it will show. Oftentimes they have worked in the industry for many years, and finally had a realization about how it needs to change or where it’s headed next. Sometimes great founders build a startup because they want to use the product themselves. Whatever the reason, they should be passionate about this new business.

The origin story of a startup is important. If you talk with founders who don’t give a very good reason for starting the business, they probably aren’t going to take it too seriously.

+ Early Investing Co-Founder Adam Sharp

Q: At age 89, I find it difficult to think about a three- to five-year wait before I can cash out my startup investments. Is it possible to change the name of the stock owner to my grandson, who at 18 has a better chance of surviving the wait time?

A: This is a terrific question. Many of our members invest in startups on behalf of their grandchildren. But what I love is why our members want to give their startup portfolios to their grandkids.

For many of our members, their startup investments are their legacy. Yes, they want the investments to be successful and to generate wealth. But just as important is the idea that these portfolios will inspire their grandchildren to become investors themselves.

In terms of the actual mechanics of leaving shares to your grandchildren, you have a few options. Most portals will have assignment agreements that you can sign to transfer your shares to your grandchildren.

Some crowdfunding portals allow you to invest on behalf of a revocable trust. A revocable trust is a trust where you can cancel the benefits if you choose to.

You can also leave your portfolio to your grandchildren in your will.

We’re not estate planners. So we can’t tell you what the right choice is for you. But you do have choices. You should email your lawyers and the portals (like SeedInvest or Republic) where you’ve invested (or plan on investing) in startups to help you set up and execute the agreement.

+ Early Investing Senior Managing Editor Vin Narayanan

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