Top Questions VCs ask Founders in Pitch Meetings
Whether you’ve got an idea or MVP and are actively seeking financing or have just started out along your journey, its important to know what investors will ask you and why investors ask the types of questions they ask.
If a founder is not prepared in answering these questions about their business, the likelihood is, he or she will struggle to raise any investment.
Founders, use this list as a preparation tool for pitching to investors. Investors, ask these question to really understand about a start-up.
Stage of investment is an important factor to the type of questions an investor will ask so I will split this into three separate stages.
At the Pre-Seed stage, you will typically be approaching angel investors who are willing to take a punt on you and your co-founding team. If you have previously exited your own start-up, this probably doesn’t apply to you as much. Founders with a proven track record will get bumped to Seed and in some cases Series A type rounds even before building out the product. But for many going about their first start up, it’s important to make a good impression on the angel investors and potential VCs you might meet.
Once you’ve perfected your pitch, the first thing you need to do before sending out hundreds of cold emails to angel investors is utilise your network to the best of it’s ability. Ask family friends and old school mates for warm intros. Whilst people are open to cold emails and in some instances they can be really successful, a warm introduction to you and your business opportunity is incredibly valuable in terms of building trust before even entering the meeting.
Now, before getting to that meeting. Prep. Use these questions as guidance.
- Why does your company have high growth potential?
- What is the TAM (total addressable market) you plan to achieve?
- Over what time period do you plan to achieve this?
- Why is it the perfect time for your idea right now?
- Who is the customer?
- What do you understand that others don’t?
- What’s new about what you make?
- Why isn’t someone already doing this?
- What is your unfair advantage?
- What are the key things about your field that outsiders don’t understand?
- How is your idea different?
- How well do you know each-other? (if theres more than one founder)
- What expertise do you have in the field you wish to disrupt?
- Are you 100% fully committed to making your idea a success?
- How has your previous experience helped you?
- How do you deal with conflict of interest?
- How do you approach goal setting and KPIs?
- Who does what in the team?
- How have you identified this gap in the market and why are you capable of filling it?
- Who are your competitors? (do not say no one.)
- What will give your company a competitive advantage?
- What advantages does your competition have over you?
- Compared to your competition, how do you compete with respect to price, features, and performance?
- What have you done to show there is demand for your product/service?
- How do you know customers need this?
- What part of your project are you going to build first?
- What are the 3-year financial projections?
- What are the key assumptions underlying your projections?
- Has the company raised any equity or debt; what is the capitalisation structure?
- What future equity or debt financing will be necessary?
- How much of a stock option pool is being set aside for employees?
- What is the projected burn rate?
- When will you be profitable?
- What are the key metrics that the management team focuses on?
- Have you incorporated, or formed any legal entity (like an LLC) yet?
- What kind of entity and in what state or country was the entity formed?
- What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- What comfort do you have that the company’s intellectual property does not violate the rights of a third party?
- How was the company’s intellectual property developed?
- Would any prior employers of a team member have a potential claim to the company’s intellectual property?
Understand that investors at the Pre-Seed stage are essentially investing in you. All other factors are supplementary to the fact that you as an individual are able to execute what you plan, given the money you will need from the investors.
At this point as a founder, you should have an MVP or at least a prototype of the product/service you will be selling and some level of traction. Investors at this stage want to know that demand for your product exists and that people are willing to pay.
Now is a good stage to start approaching VCs and strategic investors (such as us @RLC Ventures!) about the opportunity to scale your start-up further. One important tip when reaching out to VCs/CVCs is to do your research on them beforehand. Understand if they are the correct investor for you and crucially know whether they even invest in your specific area!
I left product type questions out of the pre-seed stage because the truth is your product will likely iterate numerous times before reaching the seed stage (and numerous times after) but at this point you should be gaining some traction from whatever sort of beta type product you have.
(some questions will reoccur — improve your answers as you learn more about your start-up)
- How do you make money?
- How many paying users do you have?
- How much does customer acquisition cost?
- Which specific marketing channels are you using?
- Why are you using these marketing channels?
- What is your plan B if these sales channels are interrupted?
- What profit margins are you operating on?
- How will scaling impact profit margins?
- What pivots have you already made up until now?
- Can you tell me a story about how a customer has decided to choose you and their experience with your product?
- Who in this organisation is most replaceable?
- What unique features are you working on?
- What other streams of revenue can be added to this?
- Where are your headquarters?
- Who are the founders?
- Who are key team members?
- Any existing board members?
- How well do the founders know each-other?
- Have you encountered any issues between you thus far? (be open about this answer, no one wants you to be perfect)
- What key roles may need to be hired for soon?
- What experience/expertise do you have in this industry?
- Why are you the right person to bet on to achieve this?
- What motivates you?
- Are any of the founders willing to be bought out now?
- Are there any other people who may claim they are owed or responsible for your ideas?
Product & Tech:
- What is the next step with the product evolution?
- How does your product work in more detail?
- What’s the conversion rate?
- What has surprised you about user behaviour?
- How is your product different?
- What are the major product milestones?
- What are the key differentiated features of your product or service?
- What have you learned from early versions of the product or service?
- Provide a demonstration of the product or service.
- What are the two or three key features you plan to add?
- How much feedback have you received so far?
- What changes have you made based on that feedback?
- How many actual users do you have?
- How long do users stay on average?
- How many actual sales have you made?
- What is the annual growth rate?
- Can you provide a demonstration of the product or service now?
- How have customers been interacting with your product/service?
- How big is the market opportunity?
- What percentage of the market share do you hope to get?
- Who exactly is your best customer?
- How long will this take?
- How do you come up with these figures?
- What is your PR strategy?
- Who do you most aspire to be like?
- Who do you least want to be like?
- Why is this the right time for this product or service?
Marketing and Growth:
- Why do the reluctant users hold back?
- Where do new users come from?
- How many users do you have?
- How will customers and/or users find out about you?
- What is your distribution strategy?
- What is your user growth rate?
- What is your growth like?
- What makes new users try you?
- What’s the conversion rate?
- How much does customer acquisition cost?
- How do you define success for you and your company?
- What is the projected lifetime value of a customer?
- What advertising will you be doing?
- What is the typical sales cycle between initial customer contact and closing of a sale?
- What is unique about the company?
- What big problem does it solve?
- What legal risks do you see?
- Are you aware of any product liability risks?
- What regulatory risks could impact this business?
- What intellectual property do you own?
- Who developed any intellectual property owned?
- Have any employees or partners have left who may challenge these rights?
- Are there any additional patents pending or planned?
- How are any current intellectual assets owned?
Use of Funds:
- How will these funds be allocated?
- How much will be spent on founders’ salaries?
- How much will be spent on overhead versus expansion?
- What if you don’t get all the money you are asking for?
- What assets will be invested in with this capital?
- What are your milestones?
- What are the biggest risks to my investment?
- Why are you choosing this method of raising capital?
- How much are your personal expenses each month?
Existing Financing Round:
- What is your exit goal? (i.e. IPO, M&A)
- What is your expected time frame for this?
- Who do you imagine will help you exit?
- When do you expect you will be conducting a follow up round of fundraising?
- How much is your pre-money valuation?
- How are you determining current valuation?
- How much are you trying to raise now?
- How many previous investors will participate in this round?
- What is the next milestone this money will take you to?
- How else do you hope an investor will help beyond money?
First off, if you’re at this point, congrats. You’re in that 20% of startups that make it from Seed to Series A. You are ready for high growth. (Hopefully) You have found product market fit and are only looking to scale. You have proven to investors that you are able to attract a significant amount of paying customers and are doing between $1m-$3m ARR.
Now, it’s all about the product/offering, how customers interact and whether or not you actually have a profitable business in the long run.
Below I’ve listed the metrics VC’s care about and any other questions they may ask that are relevant. Truth is, the significance of these metrics varies in relation the the type of business you are running.
- Annual Recurring Revenue (ARR)
- CAC — customer acquisition cost
- LTV — lifetime value per customer
- ARR Growth benchmarked against Triple, Triple, Double, Double, Double (T2D3) or other successful SaaS companies (typically 3X+ YoY Growth)
- Quarterly new customers and new ARR are accelerating MoM
- Growth Accounting — is the company growing efficiently?
- Quick Ratio
- Churn Rate
- Retention Rate
- Customer Acquisition Cost Payback Period
If you are a founder/VC/investor and are keen to get in touch, reach out to one of the team members or apply for funding via our website now.