Are you someone who thrives on winging it – on showing up to a crucial meeting or an important presentation without much preparation or practice? Probably not. In fact, if you’re reading this, your goal is most likely the opposite. As a founder or entrepreneur, you understand that preparation is an integral part of success. Everyone wants to be polished, and that bar is set pretty high, right? You reach it, of course, through a lot of hard work. Preparation and practice are the “wash, rinse, repeat” of startup success.
If you’re all in, then keep reading. We’re about to take your prep work to the next level.
How To Have a Competitive Advantage in Your Pitch Meetings
Keep that word in mind, will you? Preparation and practice are all about gaining an advantage. Venture Capitalists sit through a lot of pitches. That’s part of their job. Emily Weiss, CEO and Founder of cosmetics company Glossier, said that “so much of venture capital is pattern recognition.” It’s true. Having a quick way of separating the good from the bad makes their jobs easier.
Here’s something you should know: good and bad have more to do with preparation than products or ideas. You can have a brilliant idea and still bomb your pitch meeting if you show up unprepared.
When you’re able to explain your business and can answer each question that is fired your way, it indicates a level of seriousness and commitment – that the process of launching a company and raising equity isn’t a game to you.
This is the founder you want to embody, and becoming this kind of a leader takes effort. A lot of that work involves knowing what type of questions investors may be asking and having a plan to answer them. This is where we can help.
The Questions VCs Ask Depend on the Stage You’re In
VCs tend to ask the same questions because they have a system for finding strong investment opportunities – and because they know how to expose holes in your product, plan, or model. Some of those questions will come up early, like during pre-seed funding, and others will emerge in later rounds. The stakes are high, and your job is to be ready.
Since the majority of startup founders are in or between the pre-seed and seed stages of fundraising, we’ve organized the questions you’re most likely to be asked into those two categories. We’ve also included an effective way to turn the tables and ask some important questions of your own at the end! You’re not going to want to miss that.
Pre-seed questions typically focus on as many as seven distinct categories: the team, the market, the competition, financials, legal, market validation, and your competitive advantages.
Remember: Pre-seed investors, whether they are traditional VCs or angel investors, are basically investing in you – in your ability to do the thing you say you’re able to do. The questions in this stage of funding reflect that.
- What expertise or background do you have in this industry?
- How are responsibilities shared within your team?
- What history does your team have working together?
- Are you fully committed to this business, or do you have other commitments?
- How do you and your team measure success and failure?
The Market & Your Product / Offering
- Why is now the right time to bring your idea or product to market?
- Who is your customer base or target market?
- What makes you believe that your company has high growth potential?
- How long will it take to achieve market impact or disruption?
- What is your TAM (total addressable market), and how will you achieve it?
- Everyone has competition. Who is yours?
- What does your competition do well that you’ve yet to achieve?
- What do you understand about the market that the competition does not?
- Are you more or less expensive than the competition?
- How do your features and/or benefits compare to the competition?
- How long until your business is profitable?
- What are your three-year financial projections?
- How much future debt or equity financing do you think will be necessary?
- What is your projected burn rate?
- What are you basing all of these projections on?
- What, if anything, is your corporate structure/status?
- If you incorporated, in which state or country was your company formed?
- What pieces of intellectual property – including domain names, URLs, patents (pending or otherwise), trade secrets, trademarks, and copyrights – does your company possess?
- What due diligence has been performed to ensure that your company’s intellectual property does not infringe on the third-party rights of any other person or entity?
- Would any employees (current or former) or their previous employers have a potential claim against your company’s intellectual property?
- How can you demonstrate that demand exists for your product or service?
- How do you know that customers want or need what you’re selling?
- Have you built – and subsequently tested – a minimum viable product (MVP) in the market?
- How did you find research participants, and how were results analyzed?
- What sort of SEO analysis did you perform to gauge interest or demand?
- Is anything new or disruptive about your product or service?
- Why aren’t other companies already doing this, or why might they have chosen not to?
- How is your idea different from the rest of the industry?
- Do you have any “unfair” advantages?
- What do you understand that no one else has figured out yet?
At first glance, this may seem like an overwhelming number of questions, but many of them overlap with each other. Much of the work of preparation and practice is developing clear and concise answers to very specific questions. Focus one or two in each of these categories. Write them down on index cards and have your co-founder, a team member, partner, or friends pull questions at random. Not only will you hone your pitch, but your answers will become polished and predictable.
Seed questions typically fall into nine categories – many of which focus on price, demand, and ability to scale. They include: your team, business model, the product and technology, market, growth opportunities, traction, intellectual property, existing financial round, and intended use of funds.
Remember: at this stage, seed investors are still interested in you, but now “you” includes a track record that is tangible and quantifiable. None of these questions should surprise you, so do your homework. Know what will be asked of you and prepare a straightforward answer.
- Where is your business headquartered?
- Who are the founders, key members, and what are their responsibilities?
- What about board members?
- How has any internal conflict been handled up to this point?
- Have any founders expressed interest in being bought out?
- What is your current cost of acquisition per customer?
- What are your profit margins – and how will scaling impact those?
- How has your business model changed since your initial launch?
- How many paying customers do you have right now?
- What’s a real customer interaction you’ve had that supports your business model?
The Product and Technology
- How has your product or service evolved from earlier versions?
- What key features do you plan to add in the next 6-12 months?
- Has user behavior surprised you or influenced design decisions?
- Can you show me how the product works?
- From prototype to current version, if you could do one thing differently, what would it be?
- What percentage of the market share can your business realistically own?
- Who is your best customer and why?
- Do you have a PR strategy? If so, what is it?
- Who do you admire in your market or industry?
- What’s a danger in your market or industry you’d like to avoid?
- Where will new users/clients/customers come from?
- What is your user growth rate?
- What is your current conversion rate?
- What advertising will you do with additional capital?
- Is there a way to reduce your per customer acquisition cost?
- How many users, and how long do you retain them on average?
- What is the total number of sales to date?
- What is your annual growth rate?
- What feedback – positive and negative – have you received so far?
- Have you made any changes based on that feedback?
- Have you discovered any legal or product liability issues?
- Who has (and who continues to) develop your intellectual property?
- What, if any, new patents do you have pending?
- Are there any regulatory risks you’re aware of?
- Have any partners or employees left the company that may claim ownership of your intellectual property?
Existing Financial Round
- Do you have an exit plan – including M&A or IPO?
- What is the timeline for this?
- What is your current valuation (and how is that being determined)?
- How much capital are you trying to raise now?
- Are any previous investors participating in this round of fundraising?
Use of Funds
- How will you allocate these funds between overhead and growth/expansion?
- What technology will you be able to purchase with this money?
- How much of this money will be spent on hiring more people?
- What if you’re not able to raise enough money?
- What are the risks and how are you mitigating them?
Again, many – if not most – of these questions are the same ones you ask yourself, your partners, or your co-founders regularly. At this stage of your company, questions about traction, growth opportunities, and how to allocate an infusion of capital are commonplace. If they aren’t, they should be. Don’t hesitate to work out your answers within a team. Come to a consensus, write down clear language that answers all parts of the question, and practice.
Remember: if there’s an elephant in the room, a good investor will find it and call it out. Address it with honesty and transparency before you’re asked. Don’t obfuscate the issue or minimize the potential impact. Own it. This is your business. Ron Conway – a veteran venture capitalist and well-known angel investor – said he’s looking for that willingness to take ownership immediately: “When you’re talking to me in the first minute, I’m thinking – is this person a leader?” Here’s some advice: be that leader. If you’re owning the successes, own the obstacles too.
Turning the Tables: Top Questions You Should Ask Investors
Although it may be tempting to imagine that any money is good money, working with investors is really about building a relationship. In the same way that you wouldn’t necessarily date each person you’d ever met, you won’t always want to work with every investor you meet. That’s okay. There will be times when your business isn’t the right opportunity for an investor, and other times when the investment being offered isn’t the right opportunity for your business. While you have little, if any, control over an investor’s decision, there are a few questions that will help you make – and feel good about – your choice. Remember these and be ready to ask them.
- How would other startup founders describe working with you?
- Beyond money, are there other ways you can add value to our business?
- What do you look for in an investment besides the return?
- Can you provide references for three founders you’ve worked with previously?
- What was your worst investment, and why?
Remember: we’re all just human beings, even when one of us is wearing the investor hat and the other is wearing the founder hat. Which side of the table we’re sitting on is really inconsequential. We’re people, and most of us share similar hopes, dreams, and values. We may go about achieving them differently, but at the end of the day, we want good things for ourselves and the people around us.
How The Main Stage Can Help
- Develop a clear, compelling, and interactive pitch that engages investors
- Create a seamless pipeline for maintaining and cultivating investor relationships
- Store executed agreements, correspondences, and regulatory documents
At The Main Stage, we take the hassle out of fundraising so you can turn your startup dreams into something tangible.
If you’re ready to get started we’re eager to help. Press the home button above to learn more or start your free 14-day trial. The future of fundraising is here – only at The Main Stage.
Brian A. Smith is a highly experienced investor, Co-Founder of The Main Stage, and Co-Founder and CEO of RedCrow™ Inc., a direct investment and marketing platform that specializes in cutting-edge healthcare startups. Connect with him on LinkedIn and