The question you should never ask investors in a pitch (and my answer to it)
Last week I was talking to a friend who is in the midst of raising a pretty competitive seed round. Just a day into his process and he was already flirting with that magical line of “oversubscription” (you are ‘oversubscribed” when more money has been committed to you than you are willing to raise). He is an experienced entrepreneur but hadn’t raised capital in a while and he asked me if it was cool to ask investors “how do you add value?” My initial response was a knee-jerk…I told him it pisses me off when a founder asks me this question in a pitch meeting…he asked me why…and I took a pause to think about what was at the root of this response. Ultimately I didn’t like having to answer to someone who was asking me for money… I said if I spend an hour with someone and they can’t tell that I’m going to be valuable in the round without having to ask me explicitly, then I don’t want to be in business with them. I told him that that question comes across as naïve and amateur…which I think it does…that there are ways to direct a conversation to get the answers you are looking for without interviewing someone who you are asking to invest in you. I guess I felt that the question of “why are you value add?” lacked the humility I have always tried to show when raising capital myself. Or maybe it’s that anytime a founder asks me that question it suggests that they read some blog post about how “it’s not just about the money, it’s about the value that an investor brings to the table.” For sure that blog post is true, but you don’t need to prove that you read it in your pitch meetings.
I’ve raised seed capital twice and personally, I would never ask such an explicit question…I would do my homework in advance, study each potential investor’s backgrounds, read the content they have published online, learn the stories of their operational history, and usually talked with people in their portfolio well before I ever met them. I would know the answer to such a question, and never put them on their heels or in a defensive position when my only goal was to get them to lean in…It doesn’t come across as savvy or smart…just naïve.
All that being said, I have reflected on that conversation for three or four days, and found myself trying to isolate and answer explicitly what is my “value add” as an investor…I wanted to understand if part of my knee jerk was due to a discomfort with my own ability to answer the question…so I endeavored to really get it down to what makes my capital greener than the next guy’s or girl’s…I quickly arrived at what I have known for a long time…that the best investors I know all have one outsized talent that they have built a career around, and they compliment that with an astute awareness of where their excellence begins and more importantly ends…what was my outsized talent that I share with my portfolio companies…I’m not an ops mastermind, not a brand guru, no 30 year friendships with Larry Page or Zuck…what do I do that is different than everyone else? Sure I have some good playbooks, blocking and tackling kind of stuff…but at the end of the day I think my contribution lies at the nexus of emotional support and strategic thinking…Although some would say that I am a bit callous to the outside world, I am super in tune with the emotional states of those I work with…I am an introvert and pay really close attention to how I feel and have felt over the past 4 years running startups…it’s a very unusual set of feelings and pressures…people often talk about how lonely it can be…nothing new that I am saying here…but if I think about what I really give to the founders I am close with, it’s an empathetic ear…one that requires no filter…no fear of exposing vulnerability…That empathy, in and of itself can be hard to come by for founders and CEO’s. Sure, a spouse, or close friend can perform a similar role…but without a sharp strategic lens…it is not enough. It’s not just “I understand where you are, things are gong to be ok (although that is nice for sure)…it’s “I get where you are, now here’s what we do.” I often talk about Kenny as someone who helped me develop so much as a CEO…not because he taught me any particular skill, but rather he was just so in tune with where my head was at day to day, and had the experience to tell me how my mindset was either contributing to or fucking up my strategic decision making…I guess I endeavor to fill that similar role with my own portfolio companies…if you ask me how I’m going to add value, my new response will be “I’m going to tell you when your insecurity is fucking up your strategic decision making…like right now…you are asking this stupid question to change the power dynamic of this meeting…you are fucking up because you are not confident. Don’t do this with other investors and you’ll raise your round quicker.”
Jordan Cooper's Blog: startups, venture capital, etc... 
I find it a naive question (not offensive), for the reasons you say. A quick google search plus asking around a bit before the meeting should be sufficient to figure out if the investor is valuable.
cdixon
April 22, 2012
How dare these companies offend you by asking how you’re going to help them!! How can you talk about lack of humility on their part when you’re offended by a simple, direct question?
Jamaal Jones
April 22, 2012
i knew there would be some comments to this effect…but i’m telling you, it’s a super amateur move…it’s got nothing to do with humility…but this question is like going to ask a girl’s dad for her hand in marriage and in the same meeting asking him how he’s going to contribute to your life as a father in law…
jordancooper
April 22, 2012
Actually.. feels more like right before you decide to ask your wife to marry you, you pause, and make sure you ask her why she loves you.
Nabeel
April 24, 2012
Interesting…that’s more romantic than it feels in real life.
jordancooper
April 24, 2012
Great post. I would like to know where you stand on the “oversubscription” song and dance. I sometimes have entrepreneurs come to me and say something like “we are oversubscribed but would still be willing to allow a couple more strategic angels into our round who would add value.” If they truly are “oversubscribed”, why are they bothering to solicit additional investment? Shouldn’t they get back to operating the business? I understand how being oversubscribed could make you seem more attractive to investors, but if you are still talking to people doesn’t that mean you should have raised a bigger round?
Zach Aarons
April 22, 2012
I dont know about this sir. How is it ok for you to ask “how will you beat XZY comp” “how is this viral” “what is your story” – the most basic of questions – and then deny someone the opportunity to ask you the same basic question. Why get upset when someone is direct and straightforward with you?
Andy Weissman
April 23, 2012
I never sit down to a pitch and say “sell me”…which is essentially what this question is getting at…i approach every conversation with respect
jordancooper
April 23, 2012
whether you say it or not that is what is happening. So what’s wrong with being upfront about it, just like what’s wrong with someone directly saying “why should I let you be a part of my company”
Andy Weissman
April 23, 2012
i don’t know man…i’ve got a different style…usually my conversations with founders are pretty even…i hate pitches and i hate decks and i hate being sold…a founder who has that “why should i let you be a part of my company attitude” is not someone i will have a good working relationship with…i only want to work with people who really want to work with me…indpendant of some stupid canned speech about how i will help build the team or introduce them to distribution channels…someone who partners with me partners with me the person…and i make who I am extremely visible over the course of an hour conversation…
jordancooper
April 23, 2012
“i only want to work with people who really want to work with me…” – so what about just letting them ask you what you are like to work with, including what you might do as an investor for their company
Andy Weissman
April 23, 2012
my only answer would be “this is what i’m like to work with” exactly what you see right now
jordancooper
April 23, 2012
Perhaps a middle ground, gents:
So you go into a meeting thinking you’re going to ask this “value add” question. Fine. Says nothing bad about you.
But then you’re 45 minutes into a meeting with Jordan Cooper. Don’t realize who he is yet? Still want to ask the question? Now this is an issue. This just shows that you weren’t present enough during the hang to realize its not the question you want to ask any more. And here, Jordan can’t be faulted for noticing and holding it against you.
innonate
April 23, 2012
if startups don’t work out, you could run for office friend 🙂
jordancooper
April 23, 2012
Like Andy, I don’t mind when entrepreneurs ask me this. Turnarbout is fair play. They should check my references, check me out online, all the stuff we do to them. That’s why your phrase “even” is a good one, Jordan – I’d expect if I’m respectful and even with them, they’ll be the same with me. Usually, then, it’s phrased more diplomatically. It’s more like, “How do you work with the entrepreneurs you invest in?” or “What’s your typical style and approach in working with companies?” Gets at the same point, without sounding like a tool (which is how the entrepreneur you’re describing sounded).
Jeff Bussgang (@bussgang)
May 9, 2012