The Top 10 Questions an Investor Will Ask YouBy Ken Silver on August 5th, 2015 /
Having been involved in numerous personal entrepreneurial activities and transactions, I have observed a certain level of consistency in how investors respond to investment pitches. Too often entrepreneurs fail to place themselves in an investor’s shoes and can’t answer fundamental questions. Below is a compilation of my investor’s top ten list of questions that any entrepreneur asking for money better be able to answer (on top of the thousand or more other questions that you will likely be asked).
- Why should I believe you? Credibility is the currency of the entrepreneur. Without credibility nothing its representatives say means anything. Investments are made as much in people than in things. To be credible you need to be prepared and truthful. Is your information complete and well conceived? Are your projections reasonable? 500% return in 12 months is, on its face, not believable.
- What do you want? If you don’t ask, you don’t get. Debt? Equity? How much? 25% 50% 75%? Are the principals willing to give up management control or at least a very meaningful part of it. (Get real. This WILL happen and be ready for it).
- How will this make me (not you) money? Nobody wants to invest in a deal that will just pay the entrepreneur a salary to keep moving sideways. There should be a plan in place for a return and/or return of capital.
- How much do you have invested in this venture? I have seen this question asked in every deal I’ve ever been involved in. If you don’t have any financial stake in the deal, make sure you (or your client) has a real good answer why. Quitting a job to pursue a dream constitutes a meaningful investment.
- Have you ever done this before? This is very different question from (for example) do you know how to build the app? Experience in business counts.
- Who else is involved that the prospective investor(s) needs to meet? Can the key people be trusted? Do you have to rely on a crazy genius who lives in the basement?
- What are your professional relationships? Does counsel understand small business? Is a good CPA involved?
- Will the requested level of capital be adequate to fund the business moving forwards. So long as the business is looking for money, make sure that it asks for enough?
- Who are your competitors? “There aren’t any” is a bad answer even if there aren’t any.
- Is the business adaptable? The world changes and the business better be able to change with it.
This blog is a part of the “Cleaning House” series on preparing your business for fundraising. Check out the Hertz Schram blog for more information on preparing for funding.