The top 20 killer investor questions you need to have answers for
When pitching your start up idea it’s worth imagining the type of questions you will get once you wrap up your pitch. Not having good answers will spell disaster and leave you exiting without that all important cash injection.
In a recent project I was asked to collate potential questions investors might ask a client I was working with. By the end of the day we’d crafted 100 questions across a range of topics including strategy, proposition, execution, monetisation, scaling, partners, integration, organisation, talent, legal and compliance.
The real key to success is to use the questions below to craft your pitch. Seems simple but you’d be amazed at how many start ups present their ideas and miss many of the nuggets below.
So what are the top questions to a) worry about and b) have a bloody good answer for?
Strategy & Proposition
1.Who is your target customer? — not always obvious, but the best pitches start with the user and work from there. Remember you can’t be all things to all people.
2. What is your strategy? — have an elevator pitch to describe current state, challenge and what your outcome looks like. Remember that strategy is just as much about what you won’t do, as what you plan to do.
3. Explain your proposition and why it offers value to the consumer? — Uber’s proposition is about giving people an easy, convenient and hassle free way to get from A to B. No waiting, no cash and all done in the palm of your hand. Explain what value you’re creating for users by solving their frustrations and needs.
4. What does success look like? — whether it’s 5X growth, 100M users or offices in every geography, bring it to life. The best answers focus on having a sustainable business i.e. 100M users committed to my product over the competitors.
5. What research have you done to back up your thinking? — here investors are trying to find out how much due diligence you’ve done. They also want to tease out whether you’ve spoken to real customers on the street. Few will take a punt on a hunch.
6. How are you ensuring competitive advantage? — every business can be copied so you need to explain how you’re different and more importantly how you maintain that difference over time. Explain how you intend to build barriers to entry for competitors.
7. What is your Go To Market strategy? — outline your marketing plans whether its above the line advertising, referral coupons, user trials etc. If you intend to use a sales team or affiliates then spell out your plans.
8. How will you make money? Explain your revenue and cost model. — Value isn’t just about cash. You can build something first and worry about revenue later but you need to have at least an idea as to how you intend to make money. If you’re asking an investor for cash you can’t very well expect them to hand it over without knowing how the business might become profitable. Is your business a subscription or one off transaction business?
9. What margins do you expect to enjoy? — this isn’t that difficult. You can work out your margins by examining how other businesses operate. Once you have the formula you can bake in some assumptions and forecast what the margin could look like. It will be wrong, but don’t worry. It’s about showing you know how to work out basic economics. Over time your numbers will change once your business starts to scale.
10. When exploring revenue models what other brands / companies did you evaluate? — Is your model based on a two sided marketplace like Airbnb or ebay? Did you look at a monthly subscription model like Netflix? Show investors the sausage making as to how you got to your model design and numbers.
11. What are your plans for revenue diversification in the long term? — It’s great to show a revenue model but even better to show how you might diversify over time. Once competitors come after you your market share might dip. Regulators might take a chunk out of your pie. You need to have a plan to diversify revenue and spread the risk. It also gives investors confidence that there’s multiple paths to revenue growth.
12. How will you drive loyalty and repeat purchase? — part of this comes up front in the proposition but spell out your plans for rewarding loyalty and driving repeat purchases. Are you offering discounts or incentives?
13. How do you plan to scale the business?- articulate your growth plans and break them down by year. Tie milestones and growth numbers together so investors can see how your milestones and activities will drive growth and vice versa.
14. How will your organisation grow and change over time to meet growth demands? — right now there might be three of you but soon enough you’ll have multiple teams working for you. Bring to life what the organisation will look like over the course of 12–18 months.
15. How will you scale without proportionally scaling headcount? — This is especially relevant to customer support but once you scale you can’t afford to just throw humans and money at the problems. You’ll need to show how you intend to use technology to answer customer queries or even to onboard customers. It would be wise to talk here about machine learning, automation and intelligent workflows.
16. What capabilities do you need to focus on to grow? — is it automation, delivery tracking or payment processing? Be clear about the capabilities that are essential to helping you grow.
17. Will you be in need of partnerships and if so what are they and how will you integrate? It’s unlikely you’re going to build your own 100% proprietary back-end payments system. In most cases you’ll partner with a third party. Outline how you intend to manage this process. There will also be some capabilities that aren’t in your wheelhouse. You will want to outsource these so be clear where the dividing lines are and who you intend to collaborate with.
18. What does your product, people and process roadmap look like for the next 12–18 months? — you’ll already have an idea as to how your product or service will evolve. Show investors the product, process and people changes you want to realise if you get their money. It’s sometimes wise to show what the roadmap looks with or without investment. That way investors can see where their money is going to be used.
Organisation & Talent
19. What roles / teams do you need to create in the medium to long term? — linked to question 14 but more about specific roles and people you need. Investors aren’t just a source of cash. Many will also have a black book full of skilled specialists who could help accelerate your start up.
20. What risks have you identified and how do you plan to mitigate? — here they want to know how good you are at identifying and managing risk. They don’t mind a risk taker as long as the risk is qualified and well thought through. Be clear where you see risk and how you intend to manage it.
Of course these questions only represent 20% of the questions we cataloged. Each one outlined above also has follow ups and nuances within them that are worth exploring.
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At Strategy Activist we help clients, including start ups, prepare themselves for a future of growth. To learn more about what we do and how we can help your business visit us at www.strategyactivist.com or call us on +44 7786063053.