Investing in Venture Capital? 11 Essential Questions to Ask a Venture Capital Firm

Written by Julie Castro Abrams

The world of venture capital can seem intimidating for first-time investors. Yet, women are stepping up in unprecedented numbers, eager to build wealth, influence decisions, and support the next generation of innovative companies (Investopedia). This is an outgrowth of the current large unprecedented generation of women operators with 30 years of work experience, power, influence and wealth. And it is right at the same time as there is an ecosystem of 380 women run venture firms birthed in the last decade. The How Women Lead network of 25,000 top women operators is the perfect network and they are rising to the opportunity: we are inspiring women to take control of their wealth and influence and get involved in investing. Six hundred women have invested in venture for the first time through our firms and 1800 women have committed to invest in other venture firms. This isn’t enough but it is a great start. We want you and all the women you know start looking into venture investing.

One of the most critical aspects of investing in venture capital is finding the right venture firm and for women investors, they are seeking firms aligned with their values. Asking the right questions can help ensure that you align with a venture capital firm that reflects your values and meets your investment goals.

Define your own goals and values:

• What are the kinds of things you do want to invest in? Eg. Climate solutions, women’s health solutions.

• What do you not want to invest in? Eg. Private prisons, drug and alcohol

• Who do you want to be running the companies and the venture firm? We know women perform better for their investors and we also know that diverse teams are more innovative and sustain in the long run.

• What kind of culture do you want to be affiliated with? We have all seen the movies, the articles of the negative side of start ups and venture. 

• What do you want to get out of this experience? Grow wealth, learn about venture, see innovations, find investment opportunities that you can do directly, meet other people, meet founders and potentially advise them on their company. Get experience doing due diligence, share your expertise with founders and help them grow.

• Would you be comfortable investing in a fund that doesn't have any female founders? What is the threshold that is right for you?

If you're considering investing in venture capital, here's a list of questions you can ask to identify if the firm is the right fit for you:

1. What is your investment thesis? What values does that represent?

A firm's investment thesis is its guiding principle. Are they sector-agnostic or do they target specific industries like health tech, climate tech, or fintech? Are they after new emerging categories or existing spaces that others are also investing in? What is their unique perspective on growth and opportunity in those categories? 

Investing according to your values can be rewarding on so many levels. Whether it's investing in diverse founders, tackling climate change, building solutions for women's health or advancing gender equity, a firm with a clear vision that mirrors your values is a great start.

2. What is your approach to investing?

Understanding the firm's investment approach is essential. Do they focus on early-stage startups or later-stage growth companies? What equity position do they expect to capture with a first check? Do they also follow-on (continue to invest) into later rounds? Who is on the investment committee? Is that committee diverse?  

It's crucial to find a firm whose approach resonates with your interests and risk appetite. Ask them about their decision-making process and the kind of companies they seek to back.

3. How do you help founders succeed?

Beyond providing capital, great venture firms act as partners to the founders they invest in. Ask about the support the venture firm offers their portfolio companies. Do they provide mentorship, strategic guidance, and access to networks? How hands-on are they in helping startups navigate challenges? A strong venture firm is deeply invested in the success of its companies, which is often reflected in their approach to founder support.

4. What is the percentage of women on your management team? What percentage are people of color?

Diversity in leadership matters, especially for women looking to invest in firms that share their values. Ask about the makeup of the firm's leadership team. How many women are in decision-making roles? How many are people of color? A firm with a diverse management team is more likely to be inclusive, which can translate into better decision-making and outcomes (McKinsey). 

5. What is the percentage of portfolio companies that are female-led?

If supporting women-led companies is important to you, you'll want to know how many of the firm’s portfolio companies have female CEOs, co-founders or leadership teams. A firm that consistently backs women-led businesses demonstrates a commitment to advancing gender equity, and this could be a key factor in your decision (Crunchbase).

6. How do you approach risk? What are your historical returns?

Every investor must assess their risk tolerance. Ask the firm how they assess risk when choosing investments, what their diligence process is,  and how they mitigate potential downsides. Historical performance can also offer insight, but remember that past returns are not always indicative of future performance, especially if the team is focused on emerging categories.

7. What can I expect in terms of communication?

Clear, transparent communication is vital when you're trusting a firm with your money. Will they provide regular updates on the performance of the fund? How frequently can you expect to hear from them, and in what form—emails, quarterly reports, or meetings? Knowing what to expect in terms of communication can help you stay informed and engaged throughout the investment process.

8. What is the capital call schedule?

Venture firms generally don’t want all of your commitment up front. They want your funds to be deployed when they have companies ready for investment. It is called a Capital Call when the firm asks you to send a portion of your commitment. Be sure to ask about their capital call schedule and whether it's on a regular timeline or deal-by-deal basis as this will help your cash flow planning. How Women Invest learned that our first time investors wanted a predictable schedule so they wouldn’t be caught blind sided so we have 25% capital calls over the first four years of the fund.

9. What is the timeline for returns? What happens if there is an early exit?

Venture capital investments by design are helping a company grow and get to an exit. Venture firms are designed on the assumption that the firm life including time finding great companies, helping them grow and have an exit like a sale will be about ten years. Ask the firm about their expected timeline for returns and how they handle early exits. If a company sells on year 3 of the 10 year fund, will you get money back or will the firm reinvest those funds and keep using the funds until year 10?  Will they distribute proceeds immediately or reinvest them? Understanding the exit strategy will help you set realistic expectations for your investment.

10. Do you offer continuing investor education? How can I stay involved after I make my investment?

The best venture firms for first time investors offer investor education and opportunities for you to engage and learn. Whether it's webinars, investor conferences, or regular updates, ask how they keep you informed about the latest market trends and opportunities. Staying involved not only deepens your knowledge but can also open doors to other opportunities.

11. What are the expectations from me as an LP (Limited Partner)?

It's essential to understand your role as an investor. Ask about the level of engagement the firm expects from its limited partners. Are you expected to provide strategic advice to portfolio companies? Or is your involvement more passive? Knowing these expectations upfront ensures you're aligned with the firm’s expectations.

Choosing the Right Venture Firm

The right venture capital firm for you will align with your financial goals and values. Here are a few key attributes to look for:

• Welcomes Individual Investors: Many women are entering venture capital as individual investors. Ensure the firm allows you to invest at a dollar level that works for you and your portfolio.

• Has a Transparent Investment Thesis: A firm should clearly articulate its investment thesis and have a track record to back it up. Look for transparency and consistency in their approach.

• Inspires Confidence: The management team should be experienced, diverse, and aligned with your values. You should feel confident in their ability to steward your investment.

• Operates with Integrity: Avoid firms that pressure you into making decisions. The best firms will work at your pace and respect your decision-making process.

• Aligns with Your Values: Ultimately, you want to invest with a firm whose values mirror your own. Whether it's investing in diverse founders, driving environmental impact, or supporting women-led companies, alignment with your values is crucial.

• Communicates regularly and with transparency.

Who Can Invest in Venture Capital?

To invest in most venture funds, you need to meet the U.S. Securities and Exchange Commission (SEC) guidelines for accredited investors (SEC.gov). This typically means earning more than $200,000 annually ($300,000 with a spouse) or having a net worth of over $1 million, excluding your primary residence. However, some funds may allow participation through angel investing networks or crowdfunding platforms, which can offer more flexibility for non-accredited investors.

Investing in venture capital can be a powerful way to grow your wealth, influence the future, and support the causes you believe in. By asking the right questions and aligning with a firm that matches your values and goals, you can make informed, confident decisions that benefit both you and the world, shaping a future that is inclusive, innovative, and prosperous for all.

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Julie Castro Abrams is the Founder and Managing Partner of How Women Invest and CEO of How Women Lead. She has over two decades of experience championing women’s leadership, driving legislative change, and disrupting the venture landscape to create more equitable opportunities. A seasoned investor, advisor, and Forbes contributor, she’s dedicated to elevating women leaders and was instrumental in passing California’s SB 826, mandating gender diversity on corporate boards.