Whether you are raising investment capital for your startup from angel investors or venture capital investors, you will need to answer questions about your business. Top investors will meet thousands of startups but only invest in a handful of them. Knowing how to answer the following questions will help you refine your business plan and produce a winning pitch deck for both Silicon Valley VCs and local angels. This article will share some of these key questions investors will ask to help you with your fundraising.
What is the Market opportunity?
Investors will not want to support your solution if few people have the problem it solves or if people are not willing to pay for the solution. Investors ask what the total addressable market of your solution and the market size in order to determine your company's potential market share and the value of this share. Venture capitalists are trying determine if the company has a high growth potential or not as well as other factors such as the lifetime value of your customers in order to determine if your company is likely to become a unicorn. Entrepreneurs can still build great businesses in smaller markets but they might not be attractive enough for venture capital investors. In this case, you can still pitch angel investors or institutional investors who do not have the same investment criteria constraints.
Why will customers choose your solution?
Potential investors will want to know why customers will choose your solution over alternative approaches or competitive solutions in the short term and how defensible your solution and company's intellectual property is in the long term. For example, users might choose your SaaS solution because of its ease of use and your intellectual property might be protected with a patent. If you are still early-stage, the success of your minimum viable product (MVP) will also help answer these questions.
What is your business model and how will your customers find you?
A business' growth rate is largely tide to how quickly it can acquire new paying customers and increase its revenue. A startup's go-to-market strategy will determine how it finds and wins customers. For example, a startup might acquire users from other service providers through partnerships or alternatively via paid advertising or SEO. Investors will want to know your customer acquisition strategy and customer acquisition costs in order to assess your likelihood of scaling your revenue in a sustainable way. Investors might also want to know what key metrics and performance indicators (KPIs) are specific to your industry and how you are doing with them. An effective go-to-market strategy with high retention rates will put your business in a strong position for your next financing round.
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Why is your Team the right team to back?
Investors and VCs in particular want to back the winning horse which is why investors will want to know why you, your co-founder and your founding team members are the winning team to back. Investors will want to know why your management team's experience and track record will give them a competitive advantage over your competitors. Investors will also want to know how you attract top talent and incentivise them with stock options.
How healthy are your financials?
Startups operate at a loss which is why investors will want to understand your financials to determine how their money will be spent and how it will help accelerate the growth of the business. During the due diligence phase, investors will be interested in metrics around your burn rate, cash flow and profitability in order to justify the amount you raise and ultimately the valuation of your business.
What is your vision for your company?
If your market is big enough, your solution and team the right ones and your financials make sense, the last important question investors will ask is your long term vision for the company. For example, you might be proving the case of your solution in one domain or market to expand it to others which are more attractive. Investors will want to understand the bigger picture and to know how their capital and your financial projections will help your business cross your milestones. Whilst some investors might be interested in your start-up company's exit strategy and it is important to have an answer (E.g. IPO, strategic merger), it is key to show you are committed to the business for the long term.
In this article we have shared some key investor questions and the spirit behind them to help entrepreneurs refine their pitch and raise investment capital. After successfully answering these questions and securing funding, entrepreneurs will need to overcome many obstacles including hiring a founding team, making sure the business legals are in order, running board meetings and finally creating and managing robust legal contracts. To save time on legals cost-effectively, founders should us a contract management platform like Legislate to create and organise lawyer-approved contracts. To get started, sign up to Legislate now.
About Legislate
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.