10 Questions Venture Capitalists and Angel Investors Are Going To Ask

Post on: 25 Май, 2015 No Comment

When raising money from venture capitalists or angels, youll want to meet as many as possible. They wont all invest, but each time you pitch, you get better. Each time you pitch, you get asked different questions, get different opinions and ideas. Its worth it to pitch as many people as you can, as often as you can. Wil Schroter says it perfectly, pitch everyone, all the time .

Some questions will get asked over and over. And youll discover those patterns quickly enough and adjust your pitch accordingly. If you have a less-than-stellar answer to a question that gets asked once or twice, its not a big deal. But if your weaker answers are to the most common investor questions, youve got a problem.

With that in mind, here are some of the more common questions investors will ask:

So whats your business all about? The wording of this question will change, but this is the classic elevator pitch question. Translation: In the shortest amount of time possible, grab my interest by the proverbial you-know-whats. Sell them quick, with something simple and powerful they can remember; and keep reiterating that message throughout your presentation.
Whats the barrier to entry for competition? For Web 2.0 startups this can be tough. The question comes from VCs and angels that might not be as familiar with the overall industry and the ease with which many web applications can be built. Theyre looking for a real technological barrier that might not exist. Some answers that might help you skirt this topic: launching big, building a devoted community, key partnerships and/or customers (before launch), were cooler than everyone else (this wont work.) None of these answers are great (for a host of reasons.)
Whats going to stop big monster company in your space from copying you? This is almost identical to Question #2 but its more commonly asked because theres always competition. And, its usually from the big bad wolf company thats got tons of money, lots of market share, a huge staff and years of experience.

For starters, dont say, What competition? We dont have any . Theres always competition .

Secondly, this is a tough question to answer. What is stopping big bad wolf company from copying you instantly and smashing you like a bug? Generally, you can argue:

We can move more quickly.
Big bad wolf is too busy managing what its doing to innovate.
Theyll acquire us rather than copy us (if you have examples, use them.)

Why are you raising the money you want to raise? The amount youre asking for is critical. Make sure youve done your financial homework. Dont tell them your numbers are conservative, just explain to them how you arrived at them .

How far does that money get you? Have a good answer to this question. Couch this in product and financial terms, i.e. It gets us 6 months past launch, when we expect to be cash flow positive. The best way to think about this is to calculate how long the money will last if you earn zero revenue. Count backwards by 4-6 months and that will tell you when you need to start the process of raising more money. If the money is only going to last you 4-6 months, you need to start looking for more money almost immediately (which isnt a pleasant thought.)

Do you have any customers? Have you spoken to potential customers? Investors are looking for traction, or at least the inkling of traction. As soon as possible, try and get a few potential customers to say, Sounds interesting. You might even use them as references. This raises the comfort level for investors and helps answer the question, Whats the market?

Whats your marketing strategy? For early stage companies this is a very tough question. Chances are just getting to freaking launch is what youre thinking, but thats not good enough. And launch big is equally uninspiring. Think about presenting a timeline of events and customer acquisition numbers that youre anticipating, tied to marketing. Throw in a variety of strategies that youre going to do or researching. Marketing will be critical to your success, so you better plan for it sooner rather than later.

What are you coding in? Investors do want technical details. This is an easy question to answer at least (assuming you know!)

How are you handling the technological infrastructure for scaling? Like I said, investors want technical details. They want to know that youve thought about the behind-the-scenes technology to support your system. When you get on the front page of TechCrunch. will the server hold up? When customers are signing up faster than you can process their credit cards (dont let that happen!), will the system stay running at a reasonable speed? The further you get along in the process with investors, the more technical details theyll want.

Whats the team look like? What are your backgrounds? Investors want to know the backgrounds of the founders. If youve got people on staff, theyll want to know who, why you hired those people, and who else (and how many) you need to bring on board. Theyll want to know how quickly you expect to grow the team over time as well.

Although there are common questions youll get from venture capitalists and angel investors, whats more fascinating is that each investor will ask different questions. You cant be prepared for every question, but even if you get new ones, the more comfortable you are pitching (because youve done it so many times), the better.