A list of question Venture Capitals typically ask entrepreneurs

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Before entrepreneurs pitch for funding from venture capitals and private equity firms entrepreneurs need to anticipate what questions investors are likely to ask them. Here is a list of a few questions venture capitals/private equity firms;

 

 

 

Financial Viability

 

  • How big is the market you are going after, is it a high growth market (what are the year on year growth figures) and why do you think the market you are going after is commercially viable?
  • How quickly are your revenues growing, what are the underlying factors fueling the growth (what is accelerating your growth; is it PR, marketing, or is the growth organic) and can you sustain that growth rate?
  • How much capital do you need and what will you use the capital on?
  • How much of your own money have you contributed to the company?
  • What is your revenue model is it scalable and how do you plan on scaling it?
  • What are your key metrics figures (cost of customer acquisition weighed against expected lifetime value of each customer, churn rate- if relevant, traffic, how much time are people spending on your site- this is particularly relevant if you are a content creator, how engaged are your users, what channels do you use to bring traffic to your site- are these financially sustainable methods)?

Always remember that VCs and private equity firms will generally tend to add to your projected expenses and subtract from your projected income- this is based on their experiences; entrepreneurs tend to be over optimistic about how much they will make and downplay what could go wrong with their business models.

 

 

 

Management Team (Founder/Co-Founders)

 

  • Have you built a success business before- what level of entrepreneurial expertise do you bring to the table? – If you have built a successful business before, your odds of getting venture capital go up. If you have built a number of successful businesses your odds of getting funded dramatically increase (because you have proved that you have the necessary expertise to build a successful business)
  • What relevant domain expertise do you have? – Although you could always hire employees with deep domain expertise, it is more desirable for the VC if the Founder/Co-Founders have some level of relevant domain expertise.
  • How do you plan to scale your team, will you be able to handle the scaling process?
  • What motivated you to start this business and why are you trying to raise money instead of bootstrapping your venture’s growth?
  • What are your strengths and how are those strengths relevant to your venture and your position in your venture?
  • What percentage of the venture’s equity does the management team currently own?- VCs generally prefer investing in businesses where the management team has a vested interest in the success of the business- the more equity the management team has, the more motivated they are to turn the business into a financial success.

 

 

This is possibly the most important factor VCs will look at, VCs are essentially investing in your ability to deliver on your promises- the business plan is merely speculative and unless it is an absolutely brilliant idea, it on its own will not guarantee the success of a business. Ultimately you have to prove that you have a very strategic mind, are trustworthy and can execute the business vision.

Market

 

  • Who is your business targeting and what is the size of the addressable market?
  • What problem(s) are you solving, and what solutions are currently in place to solve the particular problem(s) (who are your competitors)? – Normally, saying you have no competitors is a sign that you have not researched your market space enough or you are overly optimistic, possibly arrogant and more likely than not ignorant- these are not signals you want to portray to a potential investor.
  • What differentiates your business from the other businesses competing in your market space (what is your competitive advantage)?
  • How do you plan to gain market share?

 

 

It is important to highlight that you have done your research with regards to the market you want to enter into; it shows that you are an analytical and strategic thinker.

 

Product

 

  • What value does you product offer to its user (what is your value proposition), is your product a ‘pain-killer’ (is it something people need) or a ‘vitamin tablet’ (is it something people want)?
  • What is the price point of your product and why did you settle for that particular price point?
  • Is there anything proprietary about the product you are offering?- If there is nothing proprietary about your product, the moment your business gains some level of success competitors will begin to replicate your business model. In some instances you will have to show potential investors that by the time that happens you will have captured a significant amount of market share.
  • What evidence do you have that someone will pay for the product you are offering, or even use it to begin with?- You need to show that your business has some traction; have you made any sales, do you users registered under your platform, are your users regularly engaging with your brand- how will this translate to a revenue stream.

 

It is always to your advantage as a founder to actually try and use the product/technology you are advertising. You have to understand your product better than anyone else because if you, as the founder, are not excited about your product, how can you possibly expect anyone else to be excited about it?

 

Category : Entrepreneur
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