From startup funds to venture capital firms to influential individuals, indinero’s investors are a diverse group of tech industry innovators and change-makers. But they didn’t come flocking to our company overnight.
Founding partners Jessica Mah and Andy Su spent much of the company’s early years scrambling to balance pitching and attracting more capital with their continual obligations to build the company and recalibrate its business model. It all happened at an extreme pace, punctuated by a few moments when indinero’s future seemed uncertain at best.
These days, the company has achieved a sustainable rate of growth and success, but Jess and Andy still devote a lot of their time to maintaining their relationships with existing investors and forging connections with new ones.
We’ve discovered a great deal from our experience getting funded, but our story is only one example of what it takes to win over investors. The real insights come from our customers, many of whom are small and medium-sized businesses in the early stages of their financing cycles. We have the opportunity to talk to these dynamic startups on a daily basis and learn what challenges they’re facing, how they’re adapting to the current demands of the VC markets, and what investors are looking for.
Investor questions, what they mean, and how to respond
Is your company ready to embark on its next round of financing? See if you can answer the following questions:
What’s your story?
Translation: Why should an investor care about your company?
This basic line of reasoning should inform every fundraising decision you make, starting with the first sentences you use to introduce yourself and your startup. Effective investment seekers understand the rules of storytelling: compelling characters; high stakes; and a clear beginning, middle, and end. Remember that people are more memorable than ideas, so focus on the details and put your founders at the forefront.
How are you improving your customers’ lives?
Translation: Beyond initial market buzz and popular sentiment around your brand, can you point to the ways in which your company is making a difference for your customers and community at large?
Investors need to know that you are a) familiar with and understand the audience you’re selling to, b) putting your customers’ needs first, and c) committed to solving a problem rather than cashing in on an opportunity.
This question speaks to your company’s traction among consumers, and ultimately the depth and scope of your vision.
Why does your company need funding, and why now?
Translation: Why are you turning to outside investors rather than taking out a loan or bootstrapping? Do you need money to harness momentum and seize an opening, or merely to stay afloat?
This is your chance to demonstrate that you understand an investor’s perspective and have thought long and hard about what someone has to gain from helping to fund your company. Timing is critical as well: assess what, if anything, a potential investor has to lose from not backing your company right now.
Who else out there is doing this, and how are you doing it better?
Translation: Who are your competitors, peers, collaborators, and role models? What are you bringing to the table that they don’t—and ideally, can’t—already provide?
Take a close look at your product and service offerings, your technological capabilities, and the extraordinary talent on your team. These are your differentiating factors; hone them and incorporate them into the core of your story and value proposition.
What am I paying for?
Translation: What do you plan to give an investor in exchange for their check?
It sounds like a simplistic question, but the answers vary wildly. Some investors are looking for startups they can steer to profitability and want to become stakeholders and decision makers. Others put their money behind companies they think have a favorable chance to make it big, and would rather take a hands-off approach.
Some may be more interested in buying or licensing your intellectual property. Again, think about how all these types of venture capitalists would evaluate your company, and lead your conversation with whatever pieces would represent the highest value to them. Don’t forget to do your research!
How would you put my investment to use?
Translation: Do you have a thoughtful plan for how to use this money?
Are you seeking capital in order to hire new employees, conduct research and development, expand your offices, boost your sales or marketing budget, or for another purpose entirely? If your objectives appear ambiguous or out of concert with your business strategy, investors will have a hard time taking you seriously.
This also involves mapping out goals for these deliverables. What type of end result will they achieve and how quickly can you get there with this investment?
How soon will I see returns?
Translation: Can you connect this investment to revenue generation?
Investors expect to earn ROI, but they also understand that some investments take longer to pan out than others. The magnitude of that ROI is key here. A longer wait for a bigger payoff may speak to them and be something they are more interested in. Other investors could be the opposite. Basically, a short-term loan that expects quicker returns for maybe fewer margins.
Or they might require the best of both worlds–fast and furious.
This is why it’s important for you to be absolutely realistic here. Don’t overpromise investors and underdeliver on the return timeline or size. They will see through those grandiose dreams. Instead, come prepared to these meetings with projections for your company’s financial future, along with a record of past performance. You may also want to consider possible contingencies that would prevent you from delivering on your promises, and what remedies you could offer if things go awry.
Check out this blog on creating compelling investor reports and presentations.
Where do you plan to take the company in a year? In five years?
Translation: How aggressive are you? Does your dream resonate with me? Are we aligned in what we value?
This classic question tells someone scores about your business and personality. Your response indicates the extent to which you’ve thought about the future, as well as how realistic your ambitions are. Show your audience you understand the risks, know what would constitute a successful exit, and have confidence in your mission.
Whenever possible, identify milestones and present numbers. You need to tell an investor you not only know what you want to do but that you’ve designed a game plan to achieve it.
Why am I the right person to invest in your company?
Translation: Did you do your homework on who I am?… Psst! This is a great time to stroke the ego.
What makes the investor you’re speaking to the perfect partner for your company? What drew you to this person or group in the first place?
Maybe the investor in question isn’t your first (or even fiftieth) choice, but they should feel like your presentation was tailor-made for them. Do your due diligence, know what sets your target apart, and help them connect the dots.
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Investment is as much an outcome following financial analysis as it is an emotional choice. In business, the two aren’t that different. Learn more about winning over investors here.
Sources:
http://www.inc.com/springboard/top-10-questions-investors-ask-during-fundraising.html
http://vergehq.com/2015/11/13/13-of-the-smartest-questions-investors-ask-entrepreneurs/
http://www.bothsidesofthetable.com/2016/02/04/industry-insiders-think-will-happen-vc-2016/
