In our first article in our series “Entrepreneurship 2.0 – Beyond lean, MVP and passion” we will cover the 50 most asked questions of VC investors in pre seed to series A rounds. As a former business analyst having analyzed for sure 1000+ pitch decks and being on the other side, closing a Series-A round and helping entrepreneurs close their rounds, I have summarized the most typical questions for you
Before we get to the questions, let`s take a step back and look at how investors rate startups in a pre seed to Series A round. In general investors look at those four categories. Of course some investors further divide the four main categories in to five or six, at the end it`s always the same. If you like to dig deeper, read chapter 12 in our book “Ventures Decrypted”, if you like to dig in deeper.
Early stage investors invest mostly in the people behind the startup, as a good team will find a way to be successful. They will ask these questions below to find out if they like the team members and if they believe that they can pull off to build this company. Also typical investors will run background checks to see what reputation you have in the market and to analyze your track record by looking at your CV or on LinkedIn:
What is your life story? How did you get to this point?
What is your biggest achievement in life and what you have done to achieve them?
What is your motivation for starting this company?
How much money and time have you invested yourself?
What would you do if the startup fails?
Do you work full or part-time on your startup?
What was the hardest challenge with your startup you had to face and how did you overcome this?
Have you ever worked a minimum of 12-hour days up to 6 days a week before? What adjectives describe your work style?
How many own startups have you tried before? What is your winning or failing track record? What did you learn from your failures?
How did you gain expertise in the industry that allows you to disrupt it with your startup? What do you understand about your customers and business that others do not get?
How does the founder team fulfill the skillsets that are necessary to build up this startup? What makes you think you are qualified to run this startup?
How have you and the other co-founders met? Have you worked together before?
What was the biggest disagreement in your so far and how did you resolve it? How are decisions made in the team?
How did the team change over time? Did anyone leave the company and if so why?
Do you see yourself as long-term CEO?
For you as founder, you need to make sure that you show the investors your passion, convince them that you have the right team to execute this idea and prove that you are fully committed, so that they trust you with their money. Furthermore, be nice.
Quoting Elon Musk at his at his interview at the Wall Street Journal’s CEO Council summit 2020, when he says, “a company is an assembly of people gathered together to create a product or service”. So that`s it. A startup also exists because the founders have created a product that they believe the world/market/customer needs. So that investors share the same believe they will likely ask you the following questions:
What problem of the customer does your product solve? How important is this problem for your customers?
Who are your customers? How and when do your customers buy and use your product?
What are your main product features and your value proposition?
How much better is your product compared to the competitors` product or other alternatives?
Is the product so much better so that potential customers would switch from your existing solutions?
What is the current status of the product?
How many market tests have been completed and what was the feedback of the customers?
What is the product roadmap? How did the roadmap evolve over time?
How expensive is the development of the product until market entry?
How easy can the technology be copied? How do you secure your IP? Are there any patents in place?
Are there any government restrictions?
What is the feedback from the first customers about the product?
As a founder you need to prove to the investor that your product is 10x better than anything else in the market, that your customers see your product as a drug that they need in order to live and of course that you can make it reality.
As mentioned in our book “Ventures Decrypted” the maximum profitability of any business in the world is limited by the profit principle, which is profits = (price – costs) * quantity. So that investors can evaluate the market potential (the quantity you could sell) they will ask you the following questions:
If you could have started the company 5 years ago, now or in 5 years, what would be the best time?
Who are your competitors?
What is your competitive advantage over your competition – Your USP in terms of business and product?
Are you the first mover and if so how is this an advantage?
How large is your market (TAM – SAM – SOM)?
How will the market look in five years?
What is the power of your suppliers and buyers?
Have their been any recent VC investments into this market?
Have their been any recent exits within this market?
Is it possible to scale the business internationally?
What are the barriers to entry?
As a founder prove to the investor that you have hit the perfect timing to found this startup and that there is a huge market awaiting you. You just need their money to tab in to it.
Business Model Questions:
As any investor demands a high return on their risky investment, you need to show how you make money and how you will structure your operations, so that your startup will become much more worth in the future.
What were your achievements since you started?
What are the next steps for the company?
What is the vision of the company? Where is it in 10 years?
What is your current revenue model?
How have you tested if customers are willing to pay your suggested price?
How will you create customer stickiness and make sure customers stay?
How high do you expect your customer lifetime value (CLV)?
What is your go to market strategy? How do you plan on doing marketing and sales?
How will you deliver the product to your client?
How long does the installation/implementation take and how much will this cost?
How high do you estimate your customer acquisition cost (CAC)?
What are your main KPIs?
When do you expect to break-even?
How many investment rounds do you expect to have until break-even and also until an exit?
What is your monthly burn rate?
What milestones will you achieve with the next investment?
How many financing rounds have been done in the past?
How does the cap table look and who holds what percentage of the company?
What is the current company valuation and how did you calculate it?
Do you have already a lead investor?
Are existing investors joining the next round?
What is your preferred exit strategy and when?
For you as an entrepreneur, I recommend you to focus on simplicity and stating clear and validated numbers when answering those questions. The more you talk, the less you know. Yet the best you can do is let your sales numbers speak for you.
Those are the most typical questions VC investors in a pre-seed to Series A round will ask you. You need to prepare for all of them – that`s standard. More importantly though is that after every pitch you listen what questions come up over and over. At those points your startup or your pitch is weak and this is a part you need to improve on.