The ‘Hows’ and the ‘Whats’ — 4 Challenging Questions Venture Capitals Ask

Over the years, we have developed relationships with a wide range of Venture Capitalists (VCs) who have expressed interest in funding innovative startups to varying degrees. The fact is that each of these investors has approached founders differently. While others are very direct and harsh, some of them are kind in their interactions during calls, interviews, or meetings. While some of them enter with a strong sense of optimism about the potential of the venture idea, others are initially pessimistic.

VCs typically ask standard, simple questions during meetings, but occasionally, a difficult question will arise and catch you off guard. These questions might seem overwhelming at first, and you might not even?know what to anticipate. However, we have seen through time that often the most insightful and honest answers are the ones that turn out to be the right answers.

Here’s our list of four tough questions asked by VCs:

1. How are you Changing the World?

This is a difficult question to answer and one which you most certainly have to be prepared for. VCs all around are relentlessly looking for businesses that transcend beyond money-making to invest in. Investors expect you to be knowledgeable about the issues affecting both your immediate surroundings and the global community. Make sure your response is genuine, accurate, and sincere at this stage.

No matter how much you want to benefit the world, you are not a team of Avengers; rather, you are businesspeople, thus you should add some revenue-generation knowledge to your responses to make them more intriguing.

2. How Big are the Market Opportunities?

Most investors are looking for businesses that can scale and become meaningful, so you have to e making sure that you address the issue right up front as to why your business has the potential to become big. You cannot afford to chain down your mindset, think bigger than big. If you intend to start small, you should consider positioning your startup as a “platform” business allowing the creation of multiple products or apps to be created. Investors would want to know if your product would reach a large market and the percentage of the market your product would be able to capture over time, and for this, you should know what a large audience would mean for your kind of product.

3. How Much Funding Do You Intend to Raise?

For your business, there is not one single right answer. Before answering this question, you need to know how much money you want. Simple? Well, the next thing to be sure about is the currency you are looking to get funding in.

Another thing you should know (a lesson beyond this article) is to always know your audience. If you are before institutional funders with an industry valuation of US$4 billion, you don't go asking for US$ 600 million. In the same vein, don't go asking angel investors for US$ 150 million, these are numbers only institutional investors should be hearing. Of course, on both ends, you might get funding, it is not impossible but it is extremely rare. It wouldn't hurt if you do thorough research on your kind of audience, their capacity, and their risk tolerance before you head into meetings.

4. If You Receive the Funds, What Will you Use It For?

Investors are interested in your anticipated burn rate and how their money will be used, in case you need to raise more money in the future. Additionally, it will enable the investors to assess the feasibility of your fund-raising strategies in light of the level of funding you require. Make sure you have a response to?this complicated question?that is crystal clear, succinct, and pertinent. Too much ambiguity will give investors?the impression that you have no plan and are wasting the VC's time. Being overly precise could indicate that you are concentrating too much on the small print and missing the bigger picture.

After speaking?with numerous VCs, Angel investors, "Super Angels," and other sorts of investors and business professionals, we have some advice?for you: be honest, and never portray yourself as a brand that?you are not.

Contact us to put yourself in the best position to meet VCs and other investors at #KnightVentures.