If you’re raising money for your company and wanting to pitch to angel investors and venture capitalists, then it is essential for you to know and expect what questions will be asked and how you should approach these questions. More often than not, they will ask you the same questions over and over again which will help determine why they should choose you. Make sure you are taking notes on the questions from investors so that you can score during future meetings.
For the past 2 years, VenturX has been actively participating in pitching to investors and of course, we have compiled the top 10 questions your investor will ask you and how you should approach these questions.
Top 10 Questions and How to Approach Them
1) Where do you see the sales trend over the next 1–2 years?
This is an open-ended question. To approach this question, you must give a broad response and even touch on a variety of issues that could prove valuable to the investor’s decision-making process. The time frame will give the investor a good gauge of the opportunities as well as the risks involved over a short term. You need to provide as much proof that your answer is not full of just speculations (ie. we have 5 signed letters of intent for the next 4 months, we already have $100,000 in purchase orders that we just need to fulfill, etc.)
2) Who are the competitors in the industry?
The investors want to know who the potential competitors in the market and they expect you to know them in detail. They would also want to be alerted with any new products or services that may appear in the market which could impact your company. You should already have a concrete plan on how to deal with these competitors and focus on what makes you so special over them before your pitch.
“If an entrepreneur tells me that they don’t have ANY competitors, that is a red flag! They didn’t do their homework!” — Marvin Liao, Partner at 500 Startups, San Francisco.
3) What obstacles are you currently facing?
No doubt every business is prone to failures and weaknesses, they are part of the equation of growth and they are often where all of the great learnings come from. The investors want to know what are the vulnerabilities in your company. However, keep in mind that identifying the problem is only answering part of the question. It is more vital to convince them how are you going to overcome these problems in both short and long term and convince the investors you have what it takes to overcome any potential obstacles.
4) How is your business performing?
Your investors are interested in how your business is performing. You should give them an introduction to Key Performance Indicators (KPIs) and other non-financial metrics that are going to affect the company’s growth. For software companies like us, KPIs include the lifetime value of a customer, customer acquisition cost, and monthly recurring revenue. Whatever your key metric is, it’s usually unique to your specific business. For more info, check out one of my favourite books “Lean Analytics” — by Alistair Croll and Benjamin Yoskovitz
5) How do you track trends in your market?
Due to the nature of start-ups, especially tech-based start-ups, things change very quickly. Investors would like to know if you are aware of your industry, as well as how you find data to stay on top of industry trends. Before pitching, be prepared to share how you find data about your customers and industry, as well as how you can leverage this information to improve your business to stay on top of the game.
6) Can you tell me a story about a customer using your product?
This should not be a surprise as it should already be included in your pitch. According to our experiences, the best pitch usually is the ones that open with a story about how your products and services are helping customers. We would advise using real names to be as specific as possible to describe how your services have transformed your customers and get rid of their “pain.” Hence, be sure to craft an excellent story on your customer and let that tell a story for you!
7) How can I connect with some of your customers who have used your product or service?
If your investors ask this question, you are on the right track! They find your pitch interesting and begin what’s called the due diligence process. During due diligence, they want to know a lot more about your target market/customers. Some insights you should provide to your investors are: who they are, how you know who they are, how did you find them, what do they think about your product or service, how often are they using it, on what scale, how you interact with them, etc. This would be a good place to use metrics that we guide our startups with such as Conversion and Engagement.
8) How would you predict your market will be like in five years as a result of using your product and service?
This is a great opportunity to tell a story on the growth of your company. Predict or picture how your customers’ future as a result of using your product or service in five years’ time. Prove to your investors that you are able to envision and think critically about your product and how your customer will evolve over the next 5 years.
9) What if five years down the road we think you’re not the right person to continue running this company-how will you address that?
Don’t be surprised when they ask you this question. Yes, it is rude and odd but often times, particularly with high growth start-ups, funding CEO does not remain the CEO who scales the company beyond the start-ups' phase. This is the part where you convince the investors what kind of entrepreneur you are. The reason they asked this question is that more often than not, many founders’ ego get into the way of a company’s growth and they refuse to step down for the good of the company. It is important to address this issue and prove to the investors you do not have such “quality.”
10) How much equity are you offering?
This question usually comes at the end and if it does, it should tell you that you are on the right track and your investors are interested in the deal. The investors would like to know how their shares will be allocated and how it will be diluted assuming there are future rounds of funding such as Series rounds or even IPO when your company has matured enough. A good way to answer this would be to provide data such as generating a Capitalization Table and show them how much shares and how will that change down the road. If you need help generating a Simple Capitalization Table for your pitch, fear not, check out our article on Cap Table 101.
That should be the top 10 questions you should expect your investors to ask during your pitch. It should have covered all grounds, if not I’d love to hear from you any types of questions that aren’t covered in this article — please post them in the comments down below and don’t forget to give us a clap if you enjoy reading this article. Interested in knowing how will VC invest in 2019? Our article got you covered! Are you a startup seeking funding during Seed or Series A? Check us out here!
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About VenturX
VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.
