Raising money is hard. Many founders (myself included) admit that it’s one of the toughest parts of building and scaling a business. It requires a thick skin, flexibility, unwavering self-belief and focus. It’s a huge distraction that will more than likely require months of your time but it’s often a necessary one.
So what can you do to increase your odds of success? Prepare like everything is riding on this one meeting—because it could be. There are hundreds of questions that can legitimately come up in an investor meeting. Here are five that you can be absolutely certain you will be grilled on.
1. What Problem You Are Solving?
You wouldn’t have started this if you weren’t convinced that you were solving a real problem. Your job in this meeting is to convince the investor of the same fact. Merely believing it is not enough. The investor will likely ask the following to be sure you’ve done the necessary groundwork: what customer research have you done? Have you talked directly to customers or prospects? What early feedback have you received? How big is this problem? What qualifies you to solve it?
2. What Is Your Target Market?
This is a multi-level question that applies to both the size and geographical nature of your market and your potential customers. You’ll need to be familiar with the necessary industry jargon so that you can accurately answer any specific questions. For example, what is your TAM? (Total Addressable Market). What is your ITM? (Initial Target Market). Limited resources will require you to focus on an ITM in the early stages so don’t get all hyped-up about the multi-billion dollar opportunity that exists in the USA (your TAM) if your initial focus will be on New York (your ITM). Showing that you have an understanding of your early focus and your limitations (until you can begin to scale) will help create a level of confidence in your abilities.
3. Who Are Your Competitors?
Everyone has competition. The more you know about your competitors, the better. Be prepared to talk about their market share, competitive advantage, revenues and marketing/sales strategy. Then counter that with your own competitive advantage and how you plan to steal market share from those competitors.
4. Who Is On The Team?
This is critical as investors rarely invest in one individual. They will want to have a level of confidence in the people you’ve surrounded yourself with and understand why you are qualified to make this happen. Relevant domain expertise is particularly important and any prior experience of key individuals. If you are early in the game, a one-woman show at this point, or you have some gaps on your team, then admit to that and support it by stating what roles you will hire and when. If this funding round is to hire a CTO or VP of sales then explain that. It shows that you know what your critical hires are and you have a plan to fill them. Investors will often invest in a strong team with an unproven product or opportunity, but rarely the other way around.
5. How Will You Make Money?
This is another dual question, as you will make money not just by driving revenue but also by controlling your costs. Be prepared to talk about both your sales and distribution strategy and your pricing structure in great detail. Equally, you will need to have a deep understanding of any other elements that can impact your revenues including your customer acquisition cost (CAC), the length of time it takes to complete a sales cycle, the lifetime value of a customer (LTV) and relevant production, distribution or marketing costs.
Of course you won’t get out of the room without discussing financials in great detail, including the amount you are raising, your target valuation, burn rate, projections and their underlying assumptions, key milestones and how far the money will take you etc. But they are just seven of several hundred other questions that could come up. Remember… the investor is not out to trick you. On the contrary, they are looking for people and opportunities to believe and invest in. This meeting is your chance to prove that you have a deep understanding of both the opportunity and the risk and get one step closer to that check.