A few years ago, I moved to a city where I didn’t know anyone. I’d heard about a social group that met on Tuesday nights and decided to check it out.
There were a lot of bizarre conversations that Tuesday night. The strangest was:
Person: Hey, you’re new here, right?
Me: Yes, I just moved here from out of state.
Person: Cool. Which part of town do you live?
Me: Near the intersection of X & Y streets.
Person: Oh, so that means you make at least $XX per year, right?
Me: Pardon?
Person: Yeah, people in those neighborhoods have an income threshold of $XX, so you must, too.
And it only got weirder…
Right away, I knew that I didn’t want to invest in getting to know this person — or this social group.
Who asks a question like that moments after first meeting someone?
Entrepreneurs do, actually, in the form of the “check size” question.
Check Size
Asking a VC “how big of a check do you write?” in the first meeting is a mistake, but, unfortunately, so many entrepreneurs do it.
It usually goes like this:
Me: What questions can I answer for you about our fund?
Entrepreneur: First, how big of a check do you usually write?
Me on the inside…
It is fair and reasonable for an entrepreneur to qualify an investor. If you are raising a $50M round, you don’t want to be pitching to firms with an average check size of $250K.
But there is an appropriate time and way to openly, non-invasively ask about check size.
3 Reasons Why the “Check Size” Question Sucks
#1 - You Look Greedy
Would you ever ask on a first date, “how much money do you spend per month?”
Or ask a new co-worker on their first day, “how much was your signing bonus?”
I hope not. How would you feel if you were asked those questions on a first date or on Day 1 of a new job?
Asking a VC, “how big of a check do you write?” in the first meeting can be just as off-putting as the above scenarios. Treat your first meeting with a VC like a first date by:
Engaging with your prospect and beginning to build trust
Presenting your business opportunity as interesting
Showing that you are a person of good character
You don’t want to:
Project that you’re only after your own interests
Present yourself as shallow or arrogant
Presume that your startup is so good that you’re justified asking about check size in the first meeting
VCs use pitch meetings — especially the Q&A session — to look for insight into your behavior, your intentions. How you approach the topic of money — something VCs have and you need — is usually an indicator of how you’ll behave once you get venture money.
In venture capital, the interpersonal equity that a VC invests in you is of equal or greater value to the value of the check they write.
Once you secure money from an investor, you are going to be speaking with him/her regularly for many years, and your relationship needs to be based on more than money.
#2 - You Look Lazy
It is incredibly easy to research and deduce a VC’s average check size, and many of the resources you need to create your hypothesis are free.
Go to your VC Prospect’s website and find the companies they own.
Then go to Crunchbase, PitchBook, CB Insights, Owler, DealRoom, ZoomInfo, LinkedIn Sales Navigator, Craft, and/or Fortune’s Term Sheet and:
Look up the VC Prospect’s holdings,
See which round the VC Prospect invested in those holdings,
See how much money was raised for the round they invested in,
Tally how many other funds participated in the round,
Then calculate the average check size.
Here’s the directional equitation.
If a founder leads a round, then you can presume he/she probably contributed at least 50% of the money. It’s simple math from there… take the amount raised, cut it in half and divide it by the total investors in the round minus 1. This will give you direction regarding check size.
This exercise literally takes 10 minutes to do. If you ask me in the first meeting about check sizes, I’m going to presume our meeting — where millions could be at stake — wasn’t worth 10 minutes of homework for you.
Do you really want to waste a question on something you could find online?
#3 - You Put a VC on Defense + Neglect an Opportunity to Establish Rapport
I am biased but venture capital and entrepreneurship are two of the most interesting career paths. When you get the chance to speak with someone in these fields, there are much more interesting topics to discuss than check size (boring).
I love learning founders’ journeys and hearing horror stories from other VC’s.
The questions I love asking or responding to are:
What has surprised you the most about your job as a VC / founder?
Where do you think your industry is headed? Are you in a bubble? If so, when does it burst?
How would you fix an industry like healthcare?
What made you want to leave your steady job to get into a field as risky as entrepreneurship or early stage investing?
Knowing what you know now, would you ever launch a startup?
It can take months to secure a meeting with a VC. When you do get the chance to meet, follow Coach Lasso’s advice during Q&A:
I have never invested in a company who asked about check size in the first meeting. I’m not sure that I have ever given a second meeting.
3 Things to Do Instead to Get Your Favorable Outcome
#1 - Present Your Terms
At the end of your first meeting, it is acceptable to respectfully present your terms.
You can use this as an opportunity to uncover how much the investor typically commits per startup.
Here is how:
“Our ask is for $5 million this round, and we hope to secure that capital through no more than 5 investors to keep a clean cap table.
“We have really enjoyed our introductory meeting today and hope to continue the conversation.
“If there is mutual interest, would our ask align with the types of investments you typically make?”
Why This Works: You give the space for the VC to respectfully shed light or decline info on check size. You are not presumptive, rather appreciative. You set a boundary for future engagement. You also get a feel for whether you’re a fit for their fund. And you did it all within context that is absolutely appropriate for the first meeting.
#2 - Wait Until the Next Meeting to Talk Check Size
Simply don’t ask about check size in Meeting #1.
Focus on getting a second meeting instead.
Show the VC that you came into your meeting with no expectations beyond the chance to pitch and engage in a good conversation. That will go a long way.
When you don’t ask about check size in the first meeting, I hypothesize that you have done some research on my fund, and you value relationships with your investors.
If You Must Ask: If you’ve (A) had a good first meeting but (B) you’re not sure a Prospect is a good fit, and (C) you’re concerned about wasting time, then use the Non-Disclosure Agreement conversation as leverage to gauge your Prospect’s check size. A good talk track is:
“I’d be glad to execute an NDA, but I want to be sure we’re respecting each other’s time before signing an agreement to take a deep dive into our company.
“Our hope is to raise $5 million this round with no more than 5 participating investors. Would our strategy align with the types of investments your fund makes?”
Pros to This Talk Track: You give the VC space to respond to the question on their terms by not asking for a number. You show respect for the VC’s time. You don’t come across as aggressive.
Cons to This Talk Track: VC’s hate dealing with Founders who are stingy about NDAs… You risk coming across as prickly by setting a condition around the NDA.
#3 - Research, Research, RESEARCH!
Have I made my point yet? Re-read “You look lazy” above or see the below GIF to feel my mood.