Trying to raise money and scale as quickly as possible, many startups move full speed ahead with outreach obtaining investor meetings. However, during their pitch, it often becomes quite clear who was prepared and thought of critical questions and who didn't think much outside the box of their "great idea." If your product has piqued the interest of an investor, you can expect some follow up questions before a decision. Keep in mind that these questions mean you are dealing with thoughtful investors that may end up contributing far more than just their money to the longevity of your startup. While you will probably never be asked most of these questions in any one pitch, it is good to be prepared and keep these in mind whenever you pitch.
Team Structure Questions
Good ideas and great products are often less critical to savvy investors than the team bringing them to life. Your team must demonstrate you have the experience, skills, and tenacity to make investors feel comfortable about their future exit opportunities. Some questions you may get about your team are:
- What is the background of the team members?
- Why is your primary motivation for this company?
- Where do you see the team in the next 6 - 12 months?
- What other team members will you need to hire?
- Why is this the right team to execute your vision?
- How many employees will you have?
- Where will you be based?
- Why are you the right people to make this happen?
- Who are your board members?
- Who is willing to be bought out right now?
- Have you ever been fired from a job? Why?
- If two years from now we think you aren't the right person to run the company?
Questions About Your Target Market
A product may fill a need, but if there aren't enough customers or clients that your product can help, investors may be hesitant to invest. Investors want companies that will scale with a sizeable addressable market. Some questions you may get are:
- How big is the market opportunity?
- What is your timeline?
- How do you keep up with market trends?
- How big of a market share do you think you can get?
- Who is your customer?
- What does the customer journey look like? How would you change it?
- What companies do you most aspire to be like?
- Who is your biggest competitor?
- Who is a potential partner?
- Who companies you least want to be like?
- Why is this the right time for this product or service?
- What is your marketing strategy?
Founders often get so excited about their ideas that they do not see some obvious loopholes. Investors want to know that you have not only thought about these today, but also have a clear idea about the future of your product. Therefore, they may ask questions such as:
- Why should users care about your product or service?
- What makes your product stand out from the rest?
- Have you had any milestones?
- What have you learned from earlier versions of this?
- What are the next things you want to build out? Why?
- What are the two or three key features you plan to add?
- Are there any competitive advantages, and if so, how easy would it be for a competitor to copy them?
- What is your timeline?
- Can we see a demo of your product?
- Have you made any pivots?
- What will your product look five years from now?
- What are your KPI (Key Performance Indicators)?
Having at least some traction is typically very attractive for investors as it takes a bit of risk off the table. Early traction proves that your product has an addressable market, and people are ready and willing to use your product. Early traction questions may include:
- Has growth been consistent or attributed to some event?
- Tell us about your MVP (minimum viable product)
- What types of partnerships have you managed to acquire?
- What do your customers say about your product?
- Do you have an initial pilot? What were the results?
- How have you managed to gain traction?
- Have you collected customer feedback?
- How have you changed the product based on this?
- How will you scale this?
- How many users do you have?
- What is your retention like?
- What is your churn rate?
- What is your growth rate?
- Why does your company have scalability potential?
- What mistakes have you made?
- Can I speak to a customer?
Legal & Risk Questions
All investments come with some form of risk. However, investors want to see that you understand the risks of your business and have a plan to combat them. Thus, they may ask questions such as:
- What are the main risks to your company?
- Are there any legal issues or conflicts?
- How solid and scalable is your technology?
- Are there any liability or regulatory risks?
- How do you plan on mitigating perceived risk?
- Are there any intellectual property rights you may have, or are there any you may be violating?
- Would any team member have a potential claim to the company's intellectual property?
- Who are your competitors?
- What are your biggest weaknesses?
- What barriers are you facing?
- What do you see as the biggest risk to my investment?
- Who is the registered agent, and who filed for the company?
All investors will most definitely want to know how their money will be used. They want to know that you will be able to manage their money correctly and if the sum you are asking for is adequate for the vision you have. They want to make sure your projections are not only realistic but also worth their time. Questions you may expect are:
- What exactly will you use this capital for?
- Are your projections realistic? Why?
- How realistic are your financial projections?
- What is your business model, and how will you compare on price to your competitors?
- What is your marketing budget?
- What do your margins look like?
- What is the lifetime value of each customer?
- Why are you using your chosen marketing channels?
- What are your customer acquisition costs?
- How much money have you raised so far?
- When do you expect you will be conducting a follow-up round of fundraising?
- What is the timeline to profitability?
- What is your overhead?
- When do you expect to run out of money?
- What will you do if you don't get this funding?
- What do your monthly personal expenses look like?
- What other revenue streams can you add?
- Who handles the accounting for your company?
- How is equity split currently?
- What is your exit goal? (i.e. IPO, M&A)
- How are you determining your valuation?
- How else do you hope an investor will help beyond money?