Q: What are the key questions that investors will ask you right away when you’re looking for capital and, based on your experience, already raising capital.
A: First of all, know this. You will network with a lot of people, "getting their insights" about your business, on your way to getting funding. You may start with friends and family and angel investors before getting a seed or Series A from venture capitalists. Given that, I’ll give you my perspective as both an entrepreneur that has raised capital several times, as well as an angel investor. Plus, I’m including advice from my previous business partner and now venture capitalist, Jenny Lefcourt, of Freestyle Capital, who focuses on seed investments.
While the questions may be worded more roundabout, here is where I start and what I’m really getting at:
1. Are you backable?
Great investors invest in great people, so expect questions about YOU. This will cover not only your functional capabilities or background, like your degree and work history, but also your work ethic, grit and hunger to make this idea work. I want to know about the caliber of the entrepreneur. The business itself may evolve and even pivot, but I want to know the entrepreneur has the tenacity to make it work. That’s why many investors love people who have overcome adversity. It shows the grit that is necessary to get any idea off the ground.
2. How big is your market and why does your business need to exist?
In terms of market opportunity, big is better than small, because it is usually easier to create a very valuable company. In general, bigger markets are more forgiving than smaller markets. Then, investors need to be sold on the pain or opportunity in the market and that what you are building is 10 times a better experience than the status quo. Ideally, what you are building will help your customers save money and time, make money or simply delight them in a whole new way.
3. Why are you and your team uniquely qualified to build this business?
Investors love teams who have unfair advantages. The more your background, connections and/or insights into a market give you a leg up on the competition, the better. This is one of the reasons so many successful founders have authentically experienced the problem they are solving for: They understand what they need to build more than anyone else.
4. What is your go-to-market strategy’?
Investors like to be sold on your big vision, but also need to understand how you are going to get your product or service used by customers out of the gate. Be ready to share how you are targeting your audience to begin (and if you have the data, what your conversion or adoption rates have been). Many founders start with their most obvious target audience and then expand from there while some start with a certain geography and expand after they have proven the model works in that city.
5. What is your use of funds and future capital needs to get to profitability?
So, what are you going to do with the money? If it's going to pay you a big salary or pay for a nice office, early-stage investors aren't interested. If you are going to use the capital to de-risk the business, to acquire customers, to raise the value of the company before your next fund raising round, or get the company to profitability, great.