Well done you have managed to get a VC presentation or to stand up to pitch to a group of investors, now what?
The investor(s) will probably pour over your business plan in advance, looking for chinks in the proposal. There may be three or four people on their side of the table if it’s a VC/VCT or up to 50 if its an investor meeting peppering you with questions.
But no matter, you’ll be ready right?
Listed below are some of the most common questions to expect. Also examine your business plan with the critical eye of a financier. What other questions would an astute lender or investor ask?
Prepare and rehearse answers to all questions. Then ask someone in your office to grill you until you are familiar enough with the answers to deliver them smoothly and confidently. (This is no different from an employment interview. Anyone who does not have solid answers to predictable questions like “Why did you leave your last job?” won’t get the job.)
During the meeting:
- Stick to the facts. Sophisticated buyers are not impressed by puffery. Only assert what you can quantify and back up.
- Exude confidence and enthusiasm.
- Be prepared for unexpected questions.
- Stay flexible.
Questions investor(s) may ask:
- How large is the specific market for your product?
- What growth is expected in this market?
- What, specifically, are the company’s products/Services?
- How are they better than other products or alternative solutions?
- Are there patents? What, specifically, do they protect?
- Overcoming Inertia – What will it take to get customers to change what they are using/doing today?
- Where will you fit into the industry?
- What work remains?
- Identify major development risks or challenges.
Marketing and Sales
- Briefly explain the selling cycle.
- How will you raise customers’ awareness of your product and stimulate buying?
- What channels of distribution will you use to deliver your products?
- What is your background and previous experience?
- Where did the idea for the company come from?
- How did you get involved with the company?
- Who is presently managing the company? What are their credentials especially regarding Ã¢ÂÂ¦.
- Financial management
- Product development and production
- Identify the steps needed to reach positive cash flow.
- How has the company been funded to date?
- What is the business model? (i.e. how will the company make money?)
- Do you have any corporate partnerships in place?
- What kind of revenues can the business produce over the next five years? Profits?
- How will the investor get his money back? Through an IPO? Acquisition? When?
- How much capital is required to carry the company to the next stage?
- What is your current “burn-rate.”
- How much hard-money (cash) have the founders put in?
- What are your startup or development costs?
- What is your projected three-year revenue stream?
- How much are you planning on investing?
- What do your projected expenses look like for three years?
- What are your three-year sales forecasts?
If you anticipate being acquired
- Identify the two or three most likely buyers
- Explain why they would be interested
Now assuming investors like what they see so far, can you convincingly answer the following questions they might ask.
- Can you provide us with evidence of customer acceptance?
- Do you understand our needs such as Return on Investment or our need to be taken out?
- Can you prove you are focused on this business?
- What position will your business take in the industry or with competition?
- What are your leadership qualities and what proof do you have?
- If your business will be dependent on the competition to expand the market, what are your plans to take advantage of their leadership?
- Lack of experience in running a business like the one you propose.
- Is special or custom technology constantly required?
- Over optimistic growth projections.
- Unrealistic financial projections and use of funds.
- Your personal infatuation instead of objective evaluation of your product or service.
- You are not willing to make personal financial sacrifices.
Last 3 posts by Jon Gillespie-Brown
- Awesome video from Vinod Khosla at Startup Grind - February 12th, 2014
- Fundraising: Just when I thought it had all been said… - August 8th, 2013
- The excellent book “Venture Deals” advice: Be smart, get a stable of experienced mentors - March 26th, 2012