Top 43 questions investors ask early-stage startups and how to prepare for them
The prospect of meeting an investor makes a startup founder nervous. During a short conversation, you can secure the future of your project or lose prospects - it all depends on your ability to present your idea or project.
Understanding the fundraising process early on is crucial for ensuring a well-defined business structure and operations beyond the founding team.
Be aware that you will be asked questions and expressed doubts during your presentation. Prepare beforehand so that your answers reflect confidence and deep knowledge of your startup.
Use modern technology to forestall potential issues. For example, hotball.ai can turn your business idea into a practical business model. You can ask hotball.ai to point out the weak aspects of pitching, use expert feedback, and use proven business strategies. Another thing you can do is simulate a discussion with investors and see how’d you respond to them.
How to prepare for questions from potential investors?
It is probably impossible to prepare since every startup is unique?
First of all, forget the word “unique”. This is a safe word for any adequate potential investor who knows there is nothing unique in the world - everything has already been invented many times. Truly remarkable innovations don’t happen that often.
Understanding and accurately determining the pre-money valuation is crucial as it guides investor decisions and helps in preparing for their questions.
Tip 1: Don’t just sell the idea, sell yourself and the team
Most businesses aren’t impressive at the beginning. That’s what the early stage means. Investors want to know if you can potentially build a big business if given the chance especially on pre-seed or seed round. In case you are on the idea stage and looking to attract angel investor this makes it even more important.
Mention the hardest or most impressive thing you and key members of your team have done in your pitch deck, even if it’s not directly related to your startup. This is especially important if it’s unique.
If you’ve succeeded in something difficult or impressive, mention it. Olympic-level running doesn’t sell software, but it shows you can work hard for a long time. You don’t need to be a Nobel Prize winner, just tell a sentence or two about complex projects you’ve completed despite obstacles, as they reflect what running a startup is like.
If you’ve made money online before, even in ways you’re not proud of (like affiliate marketing or eBay arbitrage), that’s a useful signal to investors.
Talk about the most impressive thing you’ve built. Startups make products and get people to use them, and making products is generally harder to learn from scratch. Venture capital investors look for teams that have demonstrated resilience, innovation, and the ability to overcome challenges, as these qualities are crucial for maximizing potential returns and aligning with their investment strategy.
Tip 2: Be specific
Include a clear description of what you are building and who it’s for.
The most common mistake in pitch decks startup founders make is a lack of clear value proposition and description what problem does the product or service solve.
For example, this statement is vague and hard to understand:
COMPANY will help SaaS companies get more leads using cutting-edge AI-enabled algorithms and machine learning.
This doesn’t show enough understanding of either machine learning or how it actually helps to get these leads, and it doesn’t explain what the product actually is. Be specific about what the end-user experience looks like. Your reviewer is likely an early adopter and product enthusiast; they want to envision themselves using the product or service.
Here’s a better statement for the same product:
COMPANY will get SaaS companies 40%-70% more demos and signups by conducting message testing for your website, ad, or email.
This version is detailed and compelling. It makes it easy for the investor to understand what the product is all about. It mentions the target market (SaaS). It shows that the founders understand SaaS as a business model and provide two strong reasons to use the product. It avoids marketing fluff like “cutting-edge,” which investors are tired of. This pitch makes the reviewer want to know more.
Tip 3. Target market opportunity
Investors are optimists. They will envision success for your business and try to picture what that success looks like. A company with a limited success case can be a great business but a poor investment opportunity.
Venture investors seek companies that can generate at least hundreds of millions of dollars in annual revenue. “Niche” products that max out at millions are only interesting if they can lead to larger markets. If you’re creating something like Altair Basic, consider convincing the investor with a vision: “Today, it’s an interpreter for hobbyists. Tomorrow, it’s an operating system for all microcomputers. We’ll call it Windows.”You don’t need to explain everything from Windows 1.0 to today’s Microsoft; no one could have predicted that.
Venture capital investors are particularly interested in startups targeting large markets. Investors want to back startups targeting large markets. So make sure to research your total addressable market (TAM), serviceable available market (SAM), serviceable obtainable market (SOM) and include it in your pitch deck. Show them the market share you are planning on capturing.
What questions investors ask and what do they want to hear?
A professional investor hears “stories” and big ideas every day. Ask any investor how many great, disruptive, world-changing ideas and the stories surround them.
What they really want to hear is how you’ll make it work.
How you’re going to use their money to execute your great, disruptive, world-changing idea - and, of course, how you’ll take their money now and multiply it for them. Investors often ask about the exit strategy to understand the potential returns on their investment
Additionally, having a clear exit strategy as part of the long-term vision for the product is crucial. Understanding potential exit strategies, such as being acquired by trade purchasers, larger private equity firms, or achieving a liquidity event through an Initial Public Offering, can significantly enhance the appeal to investors
Other than that the vast majority of investors are looking for startups where they can add value. They don’t want to be “actively” involved in the execution, rather being able to proactively advise from relevant experience, or do valuable introductions to potential customers from their network or portfolio, or otherwise add value beyond just money.
To convince him that he can make money from your business, you need to demonstrate the scale of the problem being solved, the market size, the comparison with competitors, your strategy and economics, and back everything up with facts, analytics, and calculations.
So, here are the main questions that startup investors want to here during or after a pitch:
Product or Service Questions
What problems are you solving?
Why is this interesting to clients?
What is your competitive advantage?
What are the main stages of product development in the future?
Business Model Questions
What is your business model?
What are your revenue streams, how do you make money?
What is your current recurring revenue (MRR/ARR)?
How are you going to scale?
How does the market you operate in work, and what are the regulatory risks?
How do these factors affect your strategy?
What your customer lifetime value?
What are your plans for scaling the business?
When does it become profitable?
Marketing Strategy Questions
What is your TAM, SAM, SOM?
Who are your main competitors?
What is your go to market strategy?
What is your marketing strategy to yourself from others?
What is your CAC:CLV (customer acquisition costs to customer lifetime value) rate
Target Customers Questions
What does your ideal customer look like?
How are you going to make the product recognizable and attract the first users?
Do you have clear undestanding the customers?
What advantages, if any, do you have in terms of distribution?
How well did they work?
What worked and what didn't?
How are you going to distribute the product further?
Funding Round Questions
Your funding request and how much equity you willing to share?
Do you have angel investors or other investors?
What goals will do you want to achieve with money raised?
Where is your company registered?
Are you planning any future funding rounds?
Team Question
What you and your team have achieved in the past? What’s your experience?
What is your hiring plan?
What unique knowledge do you have?
What objective advantages do you have?
Who are your main advisors?
Vision and strategy
What is your long-term vision for your startup?
What is the growth potential?
How can you innovate to make your product more accessible and affordable?
What strategies can you employ to scale your business efficiently?
What is the most significant obstacle hindering your growth?
And finally, keep going regardless
You will face many difficulties and obstacles on your way to attracting investments and commercial partners. If your pitch doesn’t work out this time, that’s okay. Keep following and executing your business plan. You’ll have more chances to pitch to investors, just like there will always be more potential customers. You might even secure funding from the same investor later on.
Don’t give up. This won’t be the toughest moment for your company; pick yourself up and try again. Work on improving yourself, your company, and your pitch deck and be ready when new opportunities arise.
If you get into an accelerator or secure investment: Congratulations! But you haven’t finished yet. Celebrate for an evening, then get back to work. Success brings tougher challenges with higher stakes.
Regardless of whether you’re just getting started or ready to move on to harder challenges, we’re here for you. Hotball is built to help more founders map out better business plans and validate pitch decks.
Jul 1, 2024
