When raising money from venture capitalists or angels, certain questions will be asked over and over again each time you pitch your company. The questions may be asked differently and each inquirer may be looking for a certain answer but if you are prepared, you will be able to capably and strongly answer them. These common questions should not be the ones that you have weak answers.
Below are the more common questions investors ask:
- What is your business all about? The answer to this question is your “elevator pitch”. Most people are familiar with an elevator pitch in the context of a personal job search. Your company needs to have one too. Your elevator pitch must convey succinctly in a short amount of time an overview of your company but at the same time hold the investor’s interest in learning more.
- What makes your business sustainable and different? For most companies, this means you must describe how your business model is not easily copied and will become profitable or grow over the long haul. This can be explained by going through the barriers of entry for your particular industry and what are your differentiating factors from the competition. For example, a company’s barrier to entry may be high start-up costs or a strong exclusive product distribution network. In terms of competition, you want to layout why you are different from your competitors and why this is important to the sustainability of the company. Just you saying that your company is different is not enough and will hurt your credibility.
- Why are you raising this particular amount of money? The amount you’re asking for is critical. Make sure you fully understand your financial particulars – - – your costs and revenue streams. You should also know your financial models key assumptions, the driver of your financial forecasts. For more on financial modeling click here.
- When will you reach your break-event point? The investor wants to know when they can expect to see the business be able to support its day-to-day operations. It also lets the investor know if the amount of money you are asking for makes sense in terms of will
- the money invested run out before your break even point and why?
- Do you have any customers or track record? Investors are looking for some type of external assurance that your service or product offering has demand. If you do not have any customers then you should focus on the track record of comparable companies.
- What’s your marketing strategy? Investors want to know how you will attract customers to your business. Again, you can use like companies marketing strategy if you do not currently have any customers. However, that should only serve as a basis. There has to be something about your business that is different and that should be part of your marketing strategy. Your marketing strategy should include projected customer acquisition costs and a time-line to reach projected numbers.
- Is this business scalable? Most investors are looking for companies that grow tremendously in size for a big payout down the line. Make sure you clearly explain how your business model is scalable and the amount of time it will take to reach that level.
- Who is the management team? Investors want to know the backgrounds of the company founders. At the end of the day, the management team will be running the show regardless of the business model. In addition, if you have great board members, especially ones with connections that will help your business be success, flaunt them.
These are the common questions you will get when trying to raise capital. Be prepared; however, make sure you prepare for other questions that may be asked and don’t be afraid to table a question if you do not have an answer readily available. I rather a person get back to me with the right answer versus a bad wrong answer.
