Must-Know Questions Investors Will Ask Entrepreneurs Seeking?Funding

Before you interface with an investor to present your startup, you need to know the answers to the questions listed below.

Having a well-practiced speech is not solely sufficient to impress a prospective investor. Investors want to know all the things you left out, and how you came up with your assumptions. Be prepared to impress by making sure you have an answer to all of these questions.

When you are raising capital, you are always going to get the same type of questions with regards to your business repeatedly. Make sure you are also writing down questions from investors so that you can nail your answers on future meetings.

Typically, questions can start as soon as you start the presentation. Having a pitch deck template that’s is succinct and simple storytelling in slides to help you get funded is essential for improved success, so do your homework and make sure your deck is flawless.

Here is the list of questions broken down by the different key areas that will help an investor understand if your company is fundable ready and if it is a good fit with their portfolio of investments.

1- The Market

1. Why is this the right time for this product or service?

2. How big is the market opportunity?

3. What is the actual addressable market?

4. Who exactly is your best customer?

5. How do you come up with these figures?

6. What percentage of the market do you plan to get over what period of time?

7. How did you arrive at the sales of your industry and its growth rate?

8. Does your company have high growth potential, and if so, explain?

9. Who do you most aspire to be like?

10. Who do you least want to be like?

2- Marketing & Customer Acquisition

1. How much is your marketing budget?

2. How are you marketing your product or services?

3. What is your marketing strategy?

4. What is your PR strategy?

5. What is the company’s social media strategy?

6. What advertising will you be doing?

7. What is the cost of customer acquisition?

8. What is the typical sales cycle between initial customer contact and the closing of a sale?

9. What is the projected lifetime value of a customer?

3- Traction

1. How much feedback have you received so far?

2. What changes have you made based on that feedback?

3. How many actual users do you have?

4. How long do users stay on average?

5. How many actual sales have you made?

6. What is the annual growth rate?

7. The total rate of growth?

8. Has growth been linear and consistent?

9. What has held back your growth?

10. What have been the principal reasons for the early traction?

11. Can you provide a demonstration of the product or service now?

4- The Founders & Team

1. Who are the founders?

2. Who are the key team members?

3. What do you envision your role(s) to be going forward?

4. Why are you the right CEO (or other roles you hold)? Do you plan to continue in that role in the future?

5. If you could write your own job description, what would it say? What key job functions are you most passionate about?

6. What makes you and your co-founder(s) good partners? Are there common themes or topics around which you tend to disagree?

7. What holes do you have in your team and how do you plan to fill them?

8. Any existing board members?

9. How many employees do you have?

10. What key additions to the team are needed in the short term?

11. How do you plan to scale the team in the next 12 months?

12. What experience do you have in this industry?

13. Why are you the right person to bet on to achieve this?

14. Why is the team uniquely capable to execute the company’s business plan?

15. What motivates the founders and how are they showing their commitment to the business?

16. Are any of the founders willing to be bought out now?

17. Are there any other people who may claim they are owed or responsible for your ideas?

5- Passion & Commitment

1. Why do you care about this?

2. Have you invested your own money? If not, why not?

3. How much have you been paying yourself and what is your projected salary?

4. Are you working full-time on this?

6- The Competitive Landscape

1. What prevents others from copying you?

2. Who are your competitors?

3. What are your strengths and advantages over your competitors?

4. What are your weaknesses or disadvantages?

5. Compared to your competition, how do you compete with respect to price, features, and performance?

6. Your current competitors have more money and resources. What prevents your current or potential competitors from pivoting and doing the same thing?

7. What barriers to entry or scale are there for you?

8. Where is the competition letting down customers?

9. Why haven’t your competitors done this yet?

10. How do your features differ?

11. How do you compare on price?

12. How do you compare when it comes to service and customer satisfaction?

7- Financials

1. What are the company’s three-year projections?

2. What are the key assumptions underlying your projections?

3. What are the factors that limit faster growth?

4. What future equity or debt financing will be necessary?

5. Do you have a lead investor?

6. Can you tell me what other investors have committed or expressed interest?

7. What affects your margins and how do you expect this to change over time?

8. How much equity and debt has the company raised; what is the capitalization structure?

9. Who participated in earlier rounds of fundraising?

10. What is your burn rate?

11. How much burn will occur until the company gets to profitability?

12. How long will it take to become profitable?

13. What are the key metrics that the management team focuses on?

14. What stock options have been given already?

15. How much of a stock option pool is being set aside for employees?

16. What is the distribution of equity between founders?

8- Operations

1. If money and resources weren't barriers, what are three improvements you would make to your business?

2. If money and resources weren't barriers, what team members would you add?

3. How do you plan to manage the shift from a small business to a scalable company?

4. How much demand can you currently handle and what would it take to scale up?

5. If you raised more money, could you grow faster, and if so, how and why?

9- Products and Services

1. Do you have an MVP?

2. Can you provide a demonstration of the product or service?

3. Why do users care about your product or service?

4. What are the major product milestones?

5. What are the key differentiated features of your product or service?

6. What have you learned from early versions of the product or service?

7. What are the two or three key features you plan to add?

10- Intellectual Property

1. What is unique about the company?

2. What big problem does it solve?

3. What intellectual property do you own?

4. What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?

5. Are there any additional patents pending or planned?

6. How are any current intellectual assets owned?

7. What comfort do you have that the company’s intellectual property does not violate the rights of a third party?

8. Have any employees or partners have left who may challenge these rights?

9. Will there be any claims by a party claiming to be a co-founder? (Note that this issue arose with Facebook and other companies.)

11- Use of Funds

1. What is the planned use of proceeds from this round?

2. How much will be spent on founders’ salaries?

3. How much will be spent on overhead versus expansion?

4. What if you don’t get all the money you are asking for?

5. What assets will be invested in with this capital?

6. What milestones will this round of financing help you achieve?

7. What are the biggest risks to my investment?

8. Why are you choosing this method of raising capital?

9. How much of this money will be used for future fundraising efforts?

10. How much are your personal expenses each month?

12- The Business Model

1. Which specific marketing channels are you using?

2. Why are you using these marketing channels?

3. What is your plan B if these sales channels are interrupted?

4. What profit margins are you operating on?

5. How will scaling impact profit margins?

6. What pivots have you already made up until now?

7. Can you tell me a story about how a customer has decided to choose you and their experience with your product?

8. Who in this organization is most replaceable?

9. What unique features are you working on?

10. What other streams of revenue can be added to this?

13- Corporate Structure

1. How is the company currently organized?

2. Who holds which titles?

3. How are the shares are split?

4. Is there an existing board or advisors?

5. Where is the company registered?

6. Who handles accounting?

7. What unique skills and talents does each owner contribute?

8. Name someone you chose not to include as a founder and why?

9. Who filed the company?

10. Who is the registered agent on record?

14- Potential Risks

1. What do you see as the principal risks to the business?

2. What legal risks do you have?

3. Do you have any regulatory risks?

4. Are there any product liability risks?

15- Existing Financing Round

1. How much is being raised in this round?

2. What is the company’s desired pre-money valuation?

3. How are you determining current valuation?

4. What is your expected time frame for this?

5. When do you expect you will be conducting a follow-up round of fundraising?

6. How many previous investors will participate in this round?

7. What is the next milestone this money will take you to?

8. How else do you hope an investor will help beyond money?

16- The End Game

1. Who do you imagine will help you exit?

2. What is the likely exit — IPO or M&A?

3. When do you see the exit happening?

4. If it is to be by an acquisition, who are likely acquirers? What acquisitions have they made recently? Of what kinds of companies? At what multiples?

5. How will the valuation of an exit be determined given market comparable?

6. What kind of return (ROI) should I (the investor) expect?

I’m Avy and I provide strategic business consulting and executive coaching service to companies around the globe and in varying industries. I work with startups and founders, with public company CEOs, and I help companies and executives reach their personal and professional goals with respect and pride as we overcome hurdles together. Over the last 10 years, I’ve co-founded three companies, am presently a co-founder and COO/CSO of a tech company, invested in some early-stage startups as an Angel investor, acted as a consultant and advisor for a US-based VC firm, and mentored hundreds of individuals and startups. For more information, visit www.avylorencohen.com

I also encourage you to share this article with everyone that you think can benefit from it, as it may prove very useful for many.

FOLLOW ME

Twitter https://twitter.com/AvyLorenCohen

LinkedIn https://www.dhirubhai.net/in/avyloren-cohen/