Compendium Of Over 100 Questions Investors Ask Startups When Pitching
When it comes to fund raising for your startup, there are most likely over 100 questions investors ask startups during their pitch in order to not only assess your business idea and the market but also to see how comfortable and prepared you are to take on the challenging goal you set for yourself.
Alongside a number of questions investors ask startups are aimed at the product/service itself, quite a few questions will centre around yourself and your team. They will also check up on the interaction between the individual team member Argus-eyed. We have compiled the top 100 questions here based on years of screening and consulting startups.
So better prepare yourself as if you are sitting your final exams. Don’t overdo it though, for if you come across as being too constraint, your confidence will crumble. Since people often mistake confidence for competence, a person with an assumed low level of confidence might be not invited for another chat again. Investors are human being after all and who doesn’t like a chat that goes with the flow?
Be prepared, not scared!
Startup Manufactory will prepare you for your pitch! Simply book a Startup Advice Session with our senior partners by clicking here.
Breaking The Ice
At the start of the meeting, you will have the usual small talk. It is recommended that you come up with a few trending topics in the tech/vc/investment world. Just have a few headlines in mind you picked from the usual websites such as TechCrunch, Mashable, etc. If the investor happens to be English small talk about the weather may suffice. Once the conversation flows they would want to get a clear top-level overview as to what the company does, the market size, the total addressable market size, why your idea is outstanding and why do you think it may lead to a large exit. So expect the following:
What big problem does it solve?
How big is the market opportunity?
What does the company do?
What is unique about the company?
How big can the company get?
Where are you headquartered?
Yes, we all know the market size is billions of pounds with millions of consumers and will grow at a double-digit rate of X % over the next years and sure, this is why this couldn’t be a better time – of course! Instead of the usual billion-dollar-market sales talk, at this point investors would rather want to learn about the size of the total addressable market, learn about your sources, whether it be a industry report such as McKinsey, E&Y, etc, and understand a a few historic trends plus future predictions for the very segment you intend to target.
Why does your company have high growth potential?
How did you arrive at the sales of your industry and its growth rate?
What percentage of the market do you plan to get over which period of time?
What is unique about the company?
What is the actual addressable market?
What sources did you use for your research?
Team, Founders, Group Interaction
It is important to demonstrate that the team has got a clear structure and leadership. If the investor asks “Who is the CEO?” and everyone shouts “That’s me!” then he will be as concerned as when everyone just shrugs. So make sure you have got a leader, everyone has a defined role, and one leads the pack. The investors will take a particular interest in the leadership qualities of the CEO as well as in his track record and also qualifications. An MBA from a top-tier b-school comes in handy but also significant experience. This could be having served in the army, having led a sports team, having been the president at a university society, captain of a rugby team, etc. Boyscouts may count as well.
Who are the founders and key team members?
How do you plan to scale the team in the next 12 months?
What motivates the founders?
How many employees do you have?
Why is the team uniquely capable to execute the company’s business plan?
What key additions to the team are needed in the short term?
What relevant domain experience does the team have?
What university / business school did they graduate from?
What networks do you have access to?
At this point you will have to demonstrate clear knowledge about your product/service/idea, explain why it’s unique, what are the USP’s, what the value proposition is (are), and what exact problem is is intended to solve. Note: Don’t mistake features for USPs! This is a common mistake and you have to be clear about what is outstanding and what is just another stone on the pile.
What are the two or three key features you plan to add?
Provide a demonstration of the product or service.
What have you learned from early versions of the product or service?
What are the key differentiated features of your product or service?
What are the major product milestones?
Why do users care about your product or service?
How many pivots and iterations did you have?
How much did you spend on the MVP?
Do you have any patents pending?
Human survival strategies oscillate between competition and collaboration. In your case, you are facing a lot of competition in the market. If not by direct, then by indirect competitors. Make sure you are aware of your top 5 direct and top 5 indirect competitors and that you are aware of their history, failures, markets, and route-to-market strategy. If you truly believe there is no competition at all, be prepared to be show the door straight away.
What are the barriers to entry?
Compared to your competition, how do you compete with respect to price, features, and performance.
What gives your company a competitive advantage?
What advantages does your competition have over you??
Who are the company’s competitors?
Why do you want to do smth that has competitors?
Can you tell me the top 5 direct as well as 5 indirect competitors?
What is the history of your competitors?
WHat could be a competitive advantage in a thick or under served market?
Route-to-market, Marketing and Customer Acquisition
The investor wants to know how much consideration you have given to taking your product/service/idea to the market, if you know your customer, if you’ve conducted focus groups and developed a strategy upon the results, what your marketing message/story may be and what route-to-market strategy you have mapped out.
What is the typical sales cycle between initial customer contact and closing of a sale?
What advertising will you be doing?
What is the company’s social media strategy?
What is the projected lifetime value of a customer?
What is the cost of a customer acquisition?
What is the company’s social media strategy?
What is the company’s PR strategy?
How does the company market or plan to market its products or services?
Have you done any customer development?
Have you done focus groups and what are the results?
Traction & Adoption
A startup with inital traction is well perceived and therefore showing off a little here doesn’t go amiss.
How many user do you have?
What is the average churn rate?
What is the daily usage rate?
How many recurring users/customers do you have?
How many downloads/subscriptions/sign-ups/likes/shares, etc?
What is your traffic?
How many visitors?
What is the social impact?
Any celebrity endorsements?
Downsides, Risks and Threats
Although, they will work it out for themselves, here they are testing your sense for reality and check up on your competency in taking calculated risks.
Are there any product liability risks?
Do you have any regulatory risks?
What legal risks do you have?
What do you see are the principal risks to the business?
Is it illegal what you want to do?
Is there anything that can pose a potential risk in the future as in changes in regulatory frameworks?
How is the risk distributed across the team?
Is there any way to increase down-side protection?
Is there a way to shift risks around?
The Exit Strategy
Don’t forget that you are begging someone to lend you money and therefore the creditor (investor) will want to know when and how he will get his money back.
How will valuation of an exit be determined given market comparables?
Who will be the likely acquirers?
When do you see the exit happening?
What is the likely exit – IPO or M&A?
Who do you want to sell to?
How much will my return be?
Do you have any examples of comparables?
Where do you see yourself financially in 5 years down the line?
Are you in talks already?
For most businesses intellectual property is a key to success. They are also regarded as assets of the company and can be very important when it comes to liquidations, acquisitions, M&A’s etc.
Would any prior employers of a team member have a potential claim to the company’s intellectual property?
How was the company’s intellectual property developed?
What comfort do you have that the company’s intellectual property does not violate the rights of a third party?
What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
In what legal jurisdiction is the IP held?
Can the IP be liquidated?
Are you infringing the IP of another company?
Are you looking to acquire IP from distressed companies that may add value to your company?
Would you opt not to have a patent pending in order to be able to remain in complete stealth mode?
Be prepared at this point to be able to walk the investor through your financial model, P&L and balance sheet. As investors do it with models, they would want to dig deep here. They may opt for a separate session and bring an analyst along so better spreadsheet up!
What are the key metrics that the management team focuses on?
What are the factors that limit faster growth?
What are your unit economics?
How much burn will occur until the company gets to profitability?
When will the company get to profitability?
How much of a stock option pool is being set aside for employees?
What future equity or debt financing will be necessary?
How much equity and debt has the company raised; what is the capitalization structure?
What are the key assumptions underlying your projections?
What are the company’s three-year projections?
The Financing Round
Finally, the investor is keen to learn how much money has been raised so far, how the company has been financed, how the equity structure looks like, how may other investors may be involved, what the valuation may be, what you intend to use proceeds for and whether there are any tax incentive schemes such as EIS or SEIS are in place.
What milestones will the financing get you to?
What is the planned use of proceeds from this round??
Will existing investors participate in the round?
What is the company’s desired pre-money valuation?
How much is being raised in this round?
How much equity is being held by whom?
Are there any convertible loan notes on the company?
Have you made use of EIS/SEIS?
Have you done crowdfunding?
Has an accelerator/incubator put money in?
We claim by no means for this list to be comprehensive. If you would like to book a Startup Business Advice Session with us then click here.