When you are preparing for a VC pitch, don’t expect to have the green lights on with only the strength of your colorful slides and your well-practiced speech. Investors want to know all the things you left out, the unexplained truth, and how you came up with the assumptions you made. Be prepared to impress the VCs by tackling the difficult grilling after the presentation.
Below are 5 areas of questions that start up founders need to pay attention to in preparation for the grueling Q&A section.
1. MARKETING & CONSUMERS
Market opportunity is key. A business that has the potential to scale and to become meaningful seems promising to most of the investors. Investors will want to know the actual addressable market and how your business can capture the market opportunity at the right time. In the same time, venture capitalists will also want to get a sense of how the start-up plans to market itself to potential consumers.
- How big is the market opportunity?
- Why is this the right time for this product or service?
- What resistance will customers have to trying you and how will you overcome it?
- Who is going to be your first paying customer?
- What is your marketing strategy?
2. COMPETITOR & COMPETITIVE ADVANTAGE
Competition will always be a hot topic in any VC pitch. No investors are looking for ‘we do not have competitors’ as a right response. Instead, a clear way to answer is to admit the competition while presenting the competitive advantages of your business as a point of differentiation.
- Who are your competitors and who might become?
- What is your unique/unfair advantage that makes you different from existing options?
- Why won’t a huge corporation build something like this?
- Compared to your competition, how do you compete with respect to price, features, and performance?
- What are your weaknesses or disadvantages?
3. CURRENT TRACTION
One of the most important signs that investors look for is the presence of any early traction. A company that has obtained positive early traction will be more likely to obtain venture financing and with better terms.
- How much feedback have you received so far?
- What changes have you made based on that feedback?
- How many actual users do you have?
- How long do users stay on average?
- How many actual sales have you made?
- What is the annual growth rate? What has held back your growth?
4. FINANCIALS & USE OF FUNDS
Venture capitalists anticipate founders to truly understand the financials and key metrics of their business. You need to show that you have a handle on the numbers and are able to articulate them in a logical manner. In the meantime, VCs will absolutely want to know how their investment will help your financial performance as well as your proposed burn rate. It will allow the investors to test whether your fund-raising plans are reasonable given the capital requirements you will have.
- What are the key metrics that the management team focuses on?
- What are the company’s three-year projections?
- What are the key assumptions underlying your projections?
- What is your burn rate?
- How long will it take to become profitable?
- How will these funds be allocated?
5. TEAM & CORPORATE STRUCTURE
For many investors, the team behind the start-up is the most determining factor in deciding whether or not to invest. Founders must show that their team has the right set of skills, drive, experience, and dedication to grow the business. Ultimately, the investors will need to make a judgment about whether they believe in the team.
- How did your team meet?
- Who in your team does what?
- What domain expertise do you have?
- What is the toughest thing your team solved together?
- What key roles may need to be hired for soon?
When you are raising capital from venture capitalists, you are always going to get grilled by similar type of questions with regards to your business over and over again. The above listed questions will not only help you prepare for the upcoming pitch but also help you understand where your business’ weak spot it. You will need to find areas where you need to apply corrections. Such corrections will make your business even readier for the next round of funding. Good luck!