Dear Entrepreneur,
Investors usually are serious and focused people who won’t hold back when asking questions about whether they should make an investment in your company.
Many businesses do not get the funding because of the promoters inability to answer key questions every serious investor would ideally ask. Based on our experiences, if you are unable to satisfactorily respond to the following 5 (five) questions, you might not be prepared to raise funds from investors.
What Problem Are You Solving?
Since every business is launched with the objective of solving a problem, Investors will become discouraged if the real issue that motivated the establishment of the business is not addressed. It may also discourage investors if only a small number of individuals have the problem or if customers are unwilling to pay for the solution. Some typical questions to be expected include: What is the specific problem you are solving? How big / serious of a problem is it? Why is this a problem? Who has this problem? Describe your solution to this problem? How are people solving this problem today? What makes your solution unique?
Who is on your team and why?
Investors will want to know how your management team’s experience and track record will give you a competitive advantage over your competitors and how you and your team will make the company successful. Investors will want to know if you and your team have the right skills, experience and mindset to build a successful company. Some typical questions include: Have you done it before? Why is your team uniquely motivated to solve this problem? Why did you pick your co-founder? Who do you need to hire during the next 18 months to be successful? When was the last time you had disagreed on a business issue? How did you resolve it?
What is your Customer Acquisition Strategy?
Potential investors will want to know why customers will choose your solution over alternative approaches or competitive solutions. Investors will want to know your customer acquisition strategy and customer acquisition costs in order to assess your likelihood of scaling your revenue in a sustainable way. Some typical questions will include: What is your customer persona? Who is the end user? What does a day-in-a-life look like for these people? How much do you think you can charge ? What channels do you use to acquire customers? How much does it cost you currently to acquire a customer? What types of marketing or business development skills are you planning to use? What is your customer retention plan?
Who is your Competition?
Investors anticipate that you will exhibit a keen awareness of all market participants to support your claim that you are an expert in the industry. It is also necessary that you explain how and why your solution is superior than the alternatives. Some typical questions include: What differentiates your solution from other alternatives? Who are the major players? What are the strengths and weakness of your competitors products?
What will you do with the money?
Understandably, investors want to know exactly how you plan to spend their money. It is crucial that you can clearly explain how you will spend their money and what objectives you will accomplish with the funding. Investors also sometimes inquire as to how you arrived at the amount of money you are demanding. Other typical questions include: What would you be spending the money on and why did you choose to spend on these items? What is the company’s burn rate (i.e., how long will the money last)? What milestones would you achieve with the funds? Is there a plan to raise additional funds in future?
Parting Thoughts
These are just a few of the questions you can anticipate from potential investors, and they are by no means exhaustive. The Investors choice of questions will depend on their background, investment preferences & style, as well as your responses to previous questions.
By planning ahead and practising before you meet with possible investors, you can get the most out of your investor meetings. This will also help you give a great presentation that may likely persuade your prospective investors.
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