The Investor Sniff Test: A Checklist

Every investor has a list of qualifying questions they ask when introduced to a CEO or business owner for the first time. It goes without saying that you should expect and be prepared to have a detailed discussion around the business model, organization, financials, and growth picture of the company. In addition to this baseline information, investors may use the first couple of meetings or calls to start to develop a fuller picture of the business and begin to identify both the unique risks and advantages of investing in your company. We’ve compiled some of the most common questions investors say they ask in the first 1-2 meetings with CEOs to help you prepare as you begin to market your business, and more importantly, yourself, to potential investors and buyers.

On Business Operations:

1. What is your relationship with your suppliers?

2. What is your customer/payor mix?

3. How are decisions being made internally?

4. How are business strategy plans made, executed and outcomes analyzed for improvement?

5. Explain your R&D process.* *If applicable — If this is an area of focus, be prepared to talk about successful product launches and projected CAPEX.

6. Who is part of your team? Explain their roles and contribution and the investment you’ve made in the team and talk about team dynamics.

On Business Risks:

1. What has been your biggest misstep as a company?

2. What economic/macro trends have worked against you in the past?3. What are your competitors doing better than you?4. Is there any seasonality or predictable variability in demand for your product/goods/services?6. Are there any pending litigation, Medicare claims, lawsuits, etc.? What are the details if any?:

On Your Motivations:

1.What are your goals in exiting or finding a financing partner for your business? (maximize price? legacy of your company?, take care of your employees? retain a minority/majority ownership? etc.?)

2. What do you stand to lose by not completing this transaction?

3. Do you care?This isn’t so much of a question you’ll be asked to answer, as it will be one an investor infers from your actions and behavior during the first few meetings. If an intermediary is hard to get a hold of, slow to respond, or generally curt, an investor will make assumptions about the likelihood that they’ll get anywherewith the opportunity. If a seller provides incomplete responses, shows up late for the management call, or doesn’t make much of an effort in the conversation,they’ll make assumptions about what you’re seeking — other than a check.

4.Would we want to have dinner with you?(One investor cited their strict No A**hole Policy which implies they only invest in owners and CEOs with whom they can get along.)

On the Transaction Process:

1. What is your timeframe?

2. Do you plan on remaining with the company post-transaction?

3. Have you already been approached by, or are you already in discussions with, other investors or buyers?

---

“There have been several instances in which we’ve dialed in to a scheduled call [with a CEO], just to be asked, “What firm are you from again?” If we’ve scheduled a management call with you, we’ve put serious time and effort into preparing for that call. If you don’t know at least the baseline facts about our firm, we infer a lot. To put it another way, if you’re not looking into the credibility and perspective of your prospective buyers, there’s a better than fair chance you’re not a viable opportunity.

As a side note for sellers, it’s okay to ask us hard questions, too. In fact, we welcome it.”