Six Steps To Funded
6 Questions Every Investor Wants Answered
Fundraising is one of the toughest elements of building a business. It’s an onerous process, it requires a ton of preparation and you need to understand and be conversant in every aspect of it. While there are hundreds of possible questions an investor may ask (The Founder Guide tackles the Top 200 Investor Questions & Answers here) these are a few fundamental questions to start with.
If you can answer these six questions, then you will have a baseline understanding of the fundraising process, later you can get into a more granular level. If you struggle with these six basic questions then revisit your plan and your projections until you are confidently proficient in each area.
1. What Is The Problem You Are Solving?
You wouldn’t be doing this if you weren’t convinced that you were solving a problem, but you need to convince the investor that it is indeed a real problem. How do you know this for sure? What research have you done? Have you talked to customers or prospects? What feedback have you received from customers/prospects? You need to know not just what problem you are solving, but why you are unique in your approach to how you are solving it.
2. Who Is On Your Team?
If you have a great team then know how to talk about them. Make sure you know and can talk about each key team member’s individual expertise (especially their relevant domain expertise) and prior experience. If they are an ex-Googler this is the time to say that. If you are a one-woman show or lack some key players on your team, then know in advance what those roles are and how/when you will be able to fill them. It’s not a necessity to have a fully baked killer team from the outset, but you will need to have an awareness of where your weaknesses lie and how to solve for that. Investors will often invest in a strong team with a questionable product, but never the other way around.
3. Who Are Your Competitors?
No one ever has zero competition. Your job is to know everything possible about your main competitors including their product advantages, their revenues and distribution/sales strategy, their customers and their weaknesses. The more you can talk about this confidently the more confidence you will instill in your audience.
4. What Is Your Target Market?
This is never a generic conversation. You need to identify your target market in terms of geographical location and individual customers. You should understand your existing or potential customers as real people: who they are, where they live, age, income, social preferences, etc. The more you know them as real people the better you can tailor your product and your marketing to their needs. Investors will want to know that you have this level of detail about the market you are targeting. You can go deeper on this topic in our previous Blogpost on the subject.
5. How Will You Make Money?
Founders often make the mistake of talking only about their sales and distribution strategy. Don’t confuse this with revenue. Revenue = Sales. Making money incorporates much more. Obviously you will need to have a fully developed sales strategy but there are other critical elements that will impact your ability to make money. Pricing structure, cost base, length of your sales cycle, repeat use of your product, burn rate etc. If you don’t have a full understanding of these numbers, then get with your team member who does and get really comfortable being able to defend these figures.
6. How Will You Spend The Money?
Know the amounts you need to spend on critical elements and be able to connect them to your need to scale and grow. List the major milestones including product development (your roadmap), hiring, etc. that the funds will be used for. Be prepared to talk about where you see the company getting to in terms of your overall growth plans (big picture thinking). One point worth noting here is that investors will often ask how far you might go with twice the resources. So, if you are raising $1M and are offered $2M, how would that extra investment fast-track your road to success? Think about what you would do with the extra funding, (how you would invest it- team growth, software, tech, etc.) and what level it will take you to in your overall growth plan.
This is a good start but there's a lot more to know... Learn more http://www.thefounderguide.com