3 Questions Every Investor Asks a Startup

Friday Nov 15, 2019

We have been working with early stage companies for many years and we have almost always had to reengineer the investor pitch for each of them.   

Why?    

Every entrepreneur starts with a great idea driven by problem they have experienced and unlike the rest of the world, they take action to solve it.  This is the core to the DNA of most entrepreneurs.   This great strength is powerful when they are building their product or service.  Their passion for the solution drives their being.   They fall in love with their solution because they have created it from nothing.    

This strength most often becomes a weakness.  We see many entrepreneurs fall so in love with their solution that they develop a blind spot and don’t do their due diligence and evaluate the market for it.   We call this “falling in love with their baby”.  They believe their baby is the most beautiful in the world.   Here’s the challenge – it usually isn’t.   

As an entrepreneur, if you approach an investor with this mindset, you may get a rude awakening as they tell you your baby is ugly.   It may the best thing since sliced bread, but from their perspective, no one will give you money for it.   The questions they ask are not emotional.   They don’t have the ties to the problem the way you do, and they don’t intend to insult your baby, but they want to know that their money will be returned to them – and then some.  So, what are they going to ask you?   Here are the three questions.  

How much do I have to invest? 

The answer to this question is not a simple answer.   The investor is not looking for an “off the cuff” guess at an amount of money you’d like.   The core to this question is this.  Have you done your due diligence to what you need to grow your business?   Have you evaluated your costs, the number of people you need to hire, your product costs, and your allocation for sales and marketing?     Basically, do you understand what it is going to take to grow your business.   

We spend most of our time with entrepreneurs answering the next two questions.  

How long before I make my money back? 

This one is a loaded question.    They are basically saying this, “I know you think your baby is beautiful, but how about the rest of the world?”   To answer this question properly, you must have thought about it.    Here are some key questions to ask yourself:  

  • How will you make money with this?   What is your business model? 
  • Who is your ideal market?   How big is it?  Is it big enough to make the investment worthwhile? 
  • What is the true business value you deliver to that market?     
  • How are you going to sell your value and get customers? 
  • How are you going to sell this? 
  • What channels are you going to sell it through?  
  • Have you validated that people will give you money for it – at full price? 

The last item is the most important.   According to, The Global Startup Ecosystem Report 2019, by Startup Genome; 

  • Is there enough URGENCY in your market for them to give you money? Are you solving a meaningful problem? 

In order to answer all these questions, you need to have a revenue strategy created by someone who has the expertise and knowhow to understand the nuances of driving growth.  

How much am I going to make? 

This is the final question investors will ask.  In other words, if they give you money, what are you giving them back?   This is really the question about how you are going to scale.    We have seen many companies hit the revenue ceiling.   It occurs when there isn’t enough process in the organization to allow the founders to pull back and let it grow.   Predictable growth starts with process.   You must define your revenue process that incorporates all your best practices so that you can duplicate your success.   

So, when you’re building your investor pitch, make sure you have addressed these three questions: 

  • How Much do I have to invest? 
  • How Long before I make my money back? 
  • How much am I going to make? 

Your investors are making a money decision, not an emotional one.    They need a return on their money.   The greater and faster the return, the more beautiful your baby.   

 

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