What questions will investors ask me? What if I don’t know the answer to a question? Should I guess? I’m not that good at math. Help Susan!
Prospective investors ask entrepreneurs a lot of questions. And they should. Making an investment in a privately-held company usually means that the investor won’t have an opportunity to receive a profitable cash return for a good five to seven years. That’s faith!
Most entrepreneurs worry about the questions investors will ask about a business opportunity. Instead of fearing these discussions, embrace them. You WANT investors to ask a lot of questions because questions are a reliable sign of active interest and engagement. No questions can easily mean no interest. Yikes!
Consider the following questions as you prepare for meetings with investors. Not all of these questions will be relevant to your business. And, not every question will be directed at you. Sometimes investors will quietly think about these questions. Other times, they will talk to other people in your ecosystem for answers, such as your board members, employees, vendors and even your customers.
Try not to guess the answer to any question. If an investor asks a question that you have never thought about before, it’s entirely okay to reply, “Hm, that’s a good question. I’d like to check back with my team and get the right answer back to you.”
If investors ask a question about your projections or pricing, don’t ever confess that you “are not good with numbers” or have “someone else manage the numbers.” Business is all about numbers. Now is the time for you to conqueror your fears and build your company with precision and purpose. You can do it! Good luck to you.
50 Questions Investors Ask
- Does this company have any strategic value to any of my other investments that will make it extra worthwhile to learn more about this company?
- Is there growing market demand for this company’s product or service? Is there adequate statistical support for favorable growth trends on a regional, national, or international basis during the next 10 years?
- Will the company have to “do all the heavy lifting” of educating and creating customer demand for the innovation or are customers already purchasing a similar kind of product or service?
- What is exceptional about the company’s proposed product or service?
- For development stage companies, why are you confident that the product, service, retail concept, etc. can be developed and work?
- What are the primary R&D steps and resources (personnel, equipment, facilities, time-line, production, etc.) that will be required for successful development? Will any key partnerships be required?
- Are there any federal or state regulatory agencies that must approve the technology, product, service or business prior to commercial launch?
- How can this product or service line logically expand into other revenue-generating opportunities in the future?
- What is the company’s overall “business model?” How will the company bill for products or services and when? Can customers return goods or demand dissatisfied service refunds?
- How will you deliver your product or service to customers?
- Who are the company’s target customers? Do they pay their bills on a timely basis? Do they have the capacity and interest to spend more with the company?
- Do you have a clever way of locking down customers or distribution partners to keep out existing or future competitors?
- How will the company solicit target customers? What is the average amount of time it will take to “solicit and close” a new target customer? Will the company compete for customers through contract bidding?
- How hard and expensive is it to steal the best customers away from competitors?
- For startup and early stage companies, what happens if your targeted customers take three times as long to make a decision? What amount of additional cash will be required to keep your company alive?
- How will management support its sales generation efforts with promotions, public relations and advertising?
- How will the business track and incentivize re-order activity and brand loyalty?
- Is this a potentially high profit margin business or a low profit margin business?
- Can this business become one of the most profitable in its industry? Why and how?
- How will management spend my money and over what time frame?
- Will the company require additional capital (equity or debt) to achieve its goals? When? Is it likely that the company’s value will increase substantially by this time? Why?
- How long will it take for the company to achieve a point of sustainability such as cash flow breakeven? And, operating profitability?
- What are the company’s intellectual property opportunities and strategy?
- Can the company’s product or service “scale” with functional ease? What is your company’s operating capacity relative to its resources and operating infrastructure? At what break points or revenue milestones will the company have to invest in additional capacity?
- Will the company manage sensitive customer data? What administrative steps will be taken to secure customer data according to emerging state and federal data management regulations?
- How will the company respond to customer service problems?
- Who are the competitive leaders in your industry? Are they gaining market share or losing market share? Why?
- What are the weaknesses and strengths associated with the company’s competition?
- Do your competitors have deep financial pockets to fund future innovation or to spend heavily in promotions to maintain or build market share? Are any of your competitors “venture-backed” meaning that they are funded by other venture capital funds? If so, which ones? What happens to your customer base if a top competitor suddenly drops prices by, for example, 15% or more?
- Do any of your competitors represent candidates for joint venture collaboration or acquisition?
- If your company is super successful in the marketplace, which large companies will likely try to copy your most effective strategies or enter your market?
- Do any of your competitors own patents that might lock the company out of growing markets without licensing agreements or other arrangements? How likely is it that the company can secure these arrangements?
- Has the founder or any member of the company’s management team ever run a business before? Has the founder raised capital from investors before? Did those investors make money?
- Is the founder honest? Will the founder advise us of the bad news in a timely way or try to cover up the bad news?
- Does the management team have the drive, managerial wisdom and operating skills to get this company at least to “the next level” of business growth?
- Is anyone on the company’s management team “over-titled” or not up to the job at hand?
- By looking at the company’s projections and listening to management’s presentations, is the team “financially-sophisticated”? Do they understand basic accounting?
- Have all employees signed confidentiality agreements and assigned intellectual property rights to the company?
- Can the company draw upon a local talent pool to meet all of its operating requirements? If not, where will you obtain qualified talent so the company can reach its next operating goals?
- Who are members of your company’s board of directors? How will their experience help advance the company? Will our potential board candidate nominees “jell” with other board members?
- Who are members of management’s inner circle including outside experts, advisors and professional resources?
- What happens if your first prototype completely fails, how will you recover?
- What happens if a first customer’s experience is a bad experience? Will the news travel throughout social media or industry associations? Can the business lose any important licenses that may be required to operate the business?
- What type of well-publicized event or product or service quality control problem would be devastating to your company’s brand reputation?
- Where are your company’s biggest “dependencies” (a highly valued employee, partner, or supplier) during the next two years? What happens if one of these dependencies suddenly no longer wants to work with your company?
- What else can go wrong that can cause us (investors) to lose all of our money?
- What is the legal structure of your company’s business organization?
- How has this company been funded to date? On what terms? Has the company incurred any debt or other contingent obligations?
- Does the company have a stock option plan for its employees, directors or other affiliates? Has the company made any equity promises that are not yet reflected on the company’s “cap table?”
- Does the company have any active or threatened litigation?
3 BONUS QUESTIONS – Pay attention to these important questions
- Does management have a practical plan to return investor capital with a profit?
- What types of businesses might have a strategic interest in buying all or a part of the company in the future?
- Is there an active mergers and acquisitions (“M & A”) market within this industry? How are similar businesses valued by investors or business buyers?