Questions Investors Ask
A typical VC might get introduced to 1,000 companies per year, meet with 200, and invest in 4. That means 80% of the time they will decide not to meet with a company when introduced. Our syndicate members go through the same calculus. The problem is there is just not enough time.
We want to be responsive to everyone and respectful of their time. And, so, here we outline some of the questions investors ask and what they are looking for. Actually, it’s hard to beat Elizabeth Yin as she moves out to connect with founders for the Hustle Fund- so I’ll just draw attention to her list:
https://docs.google.com/document/d/1qjKBJtF0iKmJG_4IYx7qHlDNmHoGQKKTw9ab6LsVTbI/edit
What a great resource to use!
For what it’s worth, here are my thoughts on some of the questions:
Team — why is your team excellent? How long have you known each other? (Why do you think investors ask about how long you have known each other?)
Explain your background roles, experience; how are you leveraging your advisory board to plug skill gaps. This helps an investor understand why you? Do you have technical gaps that need to be plugged? Do you have the network to access them. If no, that’s fine — investors will assess how they can help, but they’ll need to know that you are willing to accept help, that you are able to manage people.
Company — Describe what your company does in one sentence.
Nailing your short pitch or one-liner is an important part of the fundraising process because it will become the foundation of the story you tell. Raising money is about selling, selling is about telling a story.
But, once you have told the story, then the details have to be there.
Market — What is the market opportunity and why will it be big?
These days, start-ups all vouch they are addressing not only markets that are over $1B, but markets that are ginormous. You need to show why it’s large beyond the market & market and other market research figures for the TAM. And, how are you accessing that market? I love to work with founders to iterate the business model to capture more alpha- capture more of that market — just because you are accessing it differently. Not every problem is equally able to capture consumer spend, and the more customers you have to convert over to your product in the market you enter, the more difficult it will be.
Business model — How do you make money? Who pays? What are the margins?
You’d be surprised at how many founders don’t address the business model. You might not know the margins or customer acquisition costs at all, because you are too early, but, where do you think you’ll get revenues from? What revenue models have you explored, even if only in conversations with prospective customers? You need to figure out HOW you are going to make money!! For post-rev, should also note how you have pivoted, which you probably have, and what you learned about the market and who buys. You should be able to explain how you monetize your product. You should also talk about how you think your business model might change and evolve over time as you scale.
Timing — Why is now the right timing for your company?
Your idea is not new, not unique, so why now- what market factors make it viable, beyond you have a technology that needs development dollars. How have you tested your concept to show that your timing is good? For an investor, timing is just about everything — too early, they are funding market education; too late, they might miss the market.
Why is this company being started today? Perhaps there has been a recent inflection point. That inflection point can be driven by a shift in consumer behavior, a new technological advance, a regulatory change, or the disappearance of a previous competitor or incumbent. why now?
Fundraising/Financing- How much do you want to raise? Why, what terms?
According to DocuSign, the finance and fundraising pages are the ones that investors dwell on the most, the longest. Investors breeze through some of the other slides, possibly because they already know the market, or at least think they do, or they may know your team because you connected with them at another startup event. What are they looking for?
How much you are raising, what were your past raises, and how you plan to spend the dollars should all be presented. I will ask questions as to why this amount — to get at how you thought about it — what you think you’ll spend the money on. There is no right answer; there are many wrong answers (i.e if you don’t answer).
Your spend plan will surely be 100% wrong, but getting behind your thinking is what interests investors. It’s up to you as a founder to really understand the key milestones you have to hit before you go out to raise money again, and how much money is that going to take.
Valuation and terms should be provided. Many founders don’t list terms. You are going to get asked this question regardless. By being transparent, at the very least, you’ll get feedback
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