Oftentimes, founders struggle to find the right time to seek fundraising. If you pitch too soon, you may not be able to answer the questions asked by the investors. And if you wait for too long, your business might burn out even before you know it.
In this blog, we’re going to help you find a solution to this problem. We’ve listed down some important questions investors ask when you enter the fundraising stage. These questions will help you decide whether you’re ready with the answers or not.
Let’s get started!
What is Your Target Market & Problem Statement?
Whether you’re trying to sell a product or a service, the first thing your investors would want to know is your target market and what is the problem that your product will solve. Their aim will be to try and understand your clarity on the pain point. This question may also lead to a conversation related to market/founder fit and will allow the customers to think about the market size.
What Makes Your Business & Its Solution Unique?
Founders sometimes tend to come up with similar solutions with products or services that might already exist in the market. Your investors won’t just be interested in understanding the solution you’re providing. Rather, they’d also be interested in understanding how unique your perspective actually is.
They’ll ask you certain questions to understand if someone else has already come up with this idea, or how your solution to the problem is different from the others. They’ll want to know if you have a secret to understand how distinguished you are.
How Does Your Product Work?
There’s no doubt in the fact that the investors are going to want to take a look at the product’s demo given that it’ll give them more clarity than your words can. Your investors want to see how invested you are in the project and how nerdy and detail-oriented you get when it comes to your product. Thus, you should always be ready with a top-notch demo.
What Metrics do You Use to Measure Growth?
Investors are always on the lookout for red flags, and your hesitation or cloudiness in terms of how you measure growth may put them off. As the brains behind the business, if you yourself are unable to find clarity on the metrics, the founders won’t be able to trust that you’re capable of growing your business.
Investors will be confident about you if you show them that you’re capable of measuring your LTV, sales funnels, CCX, activation, conversion, churn, retention, etc. They’d also want to know your thoughts on KPIs. Moreover, they would also like to know your thoughts on attaining market fit and overall business growth.
What Are Your Insights on the Traction?
There are two things that the investors may want to know about traction. Firstly, they’ll expect you to have an understanding of your business’s traction. Next, they’d want to get an understanding of how you determine traction. Oftentimes, founders consider effort or progress for traction. However, for investors traction is the number of paying customers, revenue, noteworthy growth in active users, etc.
What is the Market Size of Your Business?
Another essential question that the investors will ask is how big is the market size. The market size matters to the investors because they always want to invest in big markets with huge money so that their investment brings them a fruitful return. If the market isn’t that big, they won’t be able to earn anything out of the investment.
Moreover, the founders are expected to enter a market and increase its size. Thus, you should spend considerable time sizing up the real market of your business and create a solid growth projection for the same.
How Does Your Business Make Money?
It is a given that your investors will want to get an understanding of how your business makes money and would want to know about your customers. The investors will also be interested in knowing how you are going to strategize and use tactics to grow your business.
If you’re investing in indirect forms of earning such as advertising, they’d like to know about your strategy for gaining customers. The investors will probably ask you several questions and make conversations to understand your business model.
How Have You Priced Your Product/Service?
While there are very few chances of investors asking you this question at the early stage of your business, you still need to be prepared with a solid answer in case they ask you about the pricing of your product/service.
Here, the investors will ask you this question to get an understanding of how well you’ve done the competitor and customer research and they’d also want you to tell them that the pricing may change considering it is the early stage.
Is this the Right Time to Launch Your Business?
Investors often don’t ask this question, but it is always on their minds. Time plays an integral role and the investors would want to know why and how is this the right time for your business to take over the market. You need to ensure that you’re analyzing the market to ensure you’re launching your business at the right time.
Many businesses end up failing drastically or not making enough profits because of launching their product/service too early or too late in the market. Companies like Google, AirBnB, Uber, Facebook, etc. weren’t the first ones in their market, but they were the ones who launched themselves at the right time.
There are various factors that determine whether it is the right time for your business or not, and the investors would want to get an understanding of the market conditions to ensure it really is the right time for you.
What Makes You the Right Founder for the Market?
Investors often pay close attention to founder/market fit and they would want to know that you aren’t an accidental founder. Investors will be interested to fund your business if they see your deep vision, passion, and expertise for the same. They would ask you various questions to get an understanding of whether you have a unique insight or not.
What are the Critical Risks Involved in Your Business?
This is one of the trickiest questions that investors are likely to ask. The question is simple — If you fail, why do you think it’ll happen? This question is more like an investigation. The investors will try to understand your take on the business risks, whether you acknowledge them or not, and if you’re self-aware. You’ll be able to gain their trust by coming off as a founder who knows about the business risks and isn’t scared of dealing with them. Hence, be prepared to talk about them and show the investors that you’re aware of the risks involved.
The investors may also ask several other questions including:
- When will your business be profitable?
- What are your business’s LTV & CAC?
- What is going to be your go-to-market strategy?
- Do you have an understanding of your competitors? How do you stand apart?
- How will you use this financing and what milestones do you plan to achieve?
- What sails your boat? What is your vision for this business? And more.
The Bottom Line
We hope this blog helps you get a better understanding of the questions that may be thrown at you by the investors and what approach you need to take to woo them with your answers. Here’s a word of advice — Investors are on the lookout for deals that provide them with huge ROIs. For them, this investment is going to be a transaction and you shouldn’t confuse their enthusiasm with friendliness. It’s highly likely that you’ll hear no plenty of times before getting a maybe or yes.
Don’t get disheartened and try to learn from every investor meeting you have so that you can ace the next one. If you want help with building a top-notch product strategy, you can count on us to help you out! Want to turn your idea into a product/service that solves a unique problem? Reach out to us right now!