When startups need to grow faster, they usually approach possible investors for funding. Financing rounds are many or less depending on how fast your company is growing and how much money you get in each of these rounds. However, the most difficult part is answering questions from venture capitalists about your startup during your pitch. It is therefore important that when you go to look for funding, you master each of the following sections:
1. About the company
Investors will want to have an overview of the company seeking financing. They will want to know things like what the company does, what’s unique about the company, what problems it solves, where the company has it’s headquarters and how big the company intends to get.
2. About the market
This is another aspect when it comes to interviews with venture capitalists (VCs). What you are looking to do while answering questions about the market is to assure the VCs that the market is huge, growing and will probably be worth several million bucks in say 5 years or so. You should expect to answer questions enlightening them on what exact market the product is addressing, how you calculate sales in your industry, why your company stands a chance in the current market and what percentage of the market you intend to have over what period of time.
3. About the founders and team
Mark Cuban has always said on Shark Tank that when he invests in a company he gauges whether the team and the founders are worth investing in or not. Suffice to say that to most VCs, a sound team is as important as any profits the company has made or will make. In this section, you should expect to open up on issues about how many members you have in the team, why they are the ones uniquely placed to reach the company’s objectives, their skills and expertise and how you plan to increase the number of employees in the short and long term.
4. About the products or services
Investors will want extensive information about your product or service. The first thing they are going to need from you is a very elaborate presentation that demonstrates how the product/service works. Other issues like why your product is unique, what lessons you have learnt while building the product so far, and what more features you plan to add will be asked in the process of the demonstration or after.
5. About the competition
There will always be competition for any business under the moon. There is no new idea in the world today, everything depends on execution of the idea and finding that thing that will give you the edge over the competition. You will have to answer questions about the competition. The investors will want to hear how you plan to beat the competition, how your product is different from what the competition provides, and what gives you the edge. The investors will expect you to have studied your competitors carefully and to know their prices, features and performance.
6. About intellectual property
This is a very important section when it comes to funding. If you have innovated something the investors will want to know if patents were issued pursuant to the innovation. They will also want information on patents, patents pending, copyrights, trade secrets, trademarks and domain names. Assuring them that your company doesn’t infringe on any third party rights is also important.
7. About financials
Investors are keen to know if your company makes money or not. There is nothing as important to investors as money. Venture capitalists are interested in businesses that have found a sustainable model to make profits while catering for their bills and wages. They will also want projections on how much money you will be making in the next year, two years or three years. If your company hasn’t reached profitability yet, they will be keen to know your projections on it reaching profitability. Other questions like the cost of making your product or service will also be asked.
8. About Customer Acquisition
Venture Capitalists will want to know about the marketing efforts your company is currently engaged in and how much it costs to get one customer. The types of advertising you are doing will also come into question. You should also be ready to answer questions on your social media and PR strategy.
9. About risks
Venture Capitalists want to know what they are getting themselves into. They will need to be informed on any legal, regulatory, product liability and principal risks the startup faces. There will always be risks in any business plan.
Have I left out any other type of question VCs ask startups? Let me know in the comments section below.