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7 Questions Your VC Will Ask – And How to Reply



Kirjoittanut: Sanni Salokangas - tiimistä Ei tiimiä.

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” Yeah so, uh, me and my mate started this tech company, and I, uh, we’re looking for a pre-seed of, uh, 120 grand and uh, please give us some money or we go bankrupt after three months of operating!”

Pitching your startup to a potential investor is always intimidating. There is no exception to the feeling of intimidation that one feels when faced with a successful investor and trying to convince them to put money into your venture. On top of this, managing to present yourself as a professional, competent business owner when nervous requires the nerves of steel. Worry no longer, even though the only way to get better at pitching is pitching, you can always come prepared and maximize your success when facing the VC’s tear-dropping rapid-fire questions. It is better to give hasty and round answers rather than not being able to answer at all… Trust me, been there done that, nothing more embarrassing than a VC asking, “What does your ICP look like?” And you not even knowing what the term means.

Investopedia.com defines the term VC as: Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.

So, before you go out to pitch, make sure you and your potential co-owners know how to answer to these ten questions without hesitation:

 

  1. What is the problem you are trying to solve with your idea/technology/service/product?

Starting off easy: What does your company do? What is the big problem that you and your team have a solution to? Whether you have an upscale nail salon or an innovative app idea, there needs to be a problem that your company brings a solution to: Are the wealthy ladies in Tampere area looking for a higher quality nail technician or do Europeans need an informative app to help the recycle their plastic waste? The bigger the problem, the more scalable your business idea usually is. A well-defined problem is music to VC’s ears.

 

  1. What is your value proposition?

What is your company bringing to the table that is way better or what the audience has never seen before? Is the solution so unique that you will not get ran over by bigger and more established companies who also are planning on executing on that idea? Or if it is not that unique, what does your team do that makes your startup different and ready for funding?

 

  1. What does your team look like?

This question is often more important than the business idea itself. Venture capitalists – or any other investors, invest initially in your team, not in your idea. Of course, it is crucial to have a scalable and funding-friendly business model but when push comes to shove, things start to get rough and you and your co-owners see in real life why only 10% of startups succeed, the VC needs to know that the team can pull their weight. So, know your co-owners: How they work, what does their future look like within the company, are you compatible and ambitious enough? Who are your key players and who is a liability, if any?

 

  1. Who is your target customer and how big is the market?

Do your customers live in certain area, can they be very narrowly defined or is the market simply too small? Like said previously:  bigger problem, bigger market, more money. Your VC needs to know there is a possibility for you – and for them, to earn.  Smaller business ideas require relatively smaller rounds of investments, and the size of rounds pump up as the market grows.

 

  1. How to you differentiate yourself from the competition?

Showing innovation, creativity and wit with your idea shows that you’re not afraid to think outside the box. It shows that you have the characteristic of an entrepreneur and are not afraid to take risks. However, the reason your competition is thriving is because they know what they do and what works. Differentiating yourself too much from your competitors may land you a massive customer base that love your outside-the-box idea. In the worst case, however, your idea is so outlandish that customers get confused and end up running back to your competitors. Do your competitor research and study it well!

 

  1. How much capital are you raising and what will you use the funds for?

How much money do you need? Have you calculated all the streams that your VC’s money would flow into? Being able to pinpoint where your funding will eventually end up might turn out to be tricky, especially for a new startup. Therefore, it is extremely important to let your VC know the main places within your company that need the major sums of capital: Development, infrastructure, marketing, operating spaces, tangible investments etc. In addition, it is important to note that venture capital money is usually earmarked by default to marketing, sales and/or initiatives.

 

  1. What is your customer acquisition strategy and how do you plan to scale it?

How are you planning on reaching your ideal customers? Do you need money for paid marketing or some other type of advertising? For example, one potential customer acquisition strategy for a tech startup is the combination of paid ads, well-monetized social media channels, paid partnerships and search engine optimization. As the company goes through more investment rounds, the marketing budget can be increased, and the strategy scaled. However, this is easier said than done. Your VC wants to know how you are planning on finding customers, but how you eventually end up reaching them might look a whole lot different.

Make sure you and your team can answer to at least these seven questions and if not, have an urgent meeting. Arrive to meet your potential VC prepared and well-caffinated. Oh, and do not be late.

See my trashy blog sannisalokangas.com

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