Startup founders seeking to raise venture capital should expect to face tough questions, and lack of preparedness may see investors choosing to focus their attention elsewhere.
The questions will likely come thick and fast, and it is best to have all bases covered when fronting investors. But what are some of the more common questions that startup founders can expect to face?
At Medium, angel investor Li Jiang explains his meetings with founders are filled with “whys”.
“You get asked a lot of questions if you are fundraising, but I’ve distilled the list down to a handful of the essential and fundamental questions for founders raising venture capital,” he writes.
Jiang’s eight questions are:
1. Why are you building the company?
Are you driven by a personal passion? Is it your life’s work?
“The best reason to start a startup is you can’t imagine doing anything else other than to start that company,” Jiang says.
2. What separates your product from others?
Given the extremely demanding nature of getting a startup off the ground, Jiang says startups “can’t just make 10% improvements on the status quo”.
“Startups either create a new paradigm or make something 10x better,” he writes.
“And it has to be a 10x improvement on something customers care about and want to pay for.”
3. Why now?
Timing can be everything when it comes to seizing a new business opportunity and can go a long way to delivering success.
Jiang points to analysis by Idealab founder Bill Gross showing that among the most influential factors determining whether a startup will succeed, timing is number one.
4. Why you?
What makes you the right person for the job? What is it that separates you from your competitors?
“What is it about your team’s creativity, hustle, approach, expertise, insight that will allow you to end up being that single dominant leader of the category?” Jiang asks.
5. There’s a lot of big players out there — why aren’t they working on this?
Opportunities that are obvious are prone to becoming quickly crowded, and there are many companies already out there capable of drawing on vast resources to pursue these ideas.
What is it that differentiates your startup?
“Large companies have 100x more resources to pursue opportunities that seem obvious,” Jiang writes.
“What is your unique insight that very few people agree with you on? If they disagree with you, you’ll have a better chance of building your platform without the intense competition that obvious ideas face.”
6. Why will your startup dominate?
Will your business model stand up to competition? Do you have what it takes to dominate a market?
Jiang says no network effects are “usually a sign of low barriers to entry and it increases the risk of the startup itself being disrupted by new companies or big tech platforms copying the product”.
7. Why will you outdo bigger players?
Amid intense competition, how will you fare with bigger players circling?
Jiang advises startups to consider how they will find the right segment of the market from which to build, gaining “an edge in that category versus a broader tech platform”.
8. Why should I invest?
Jiang says a venture investor will usually invest in only one out of every 100–500 startups they see.
He recommends that startups consider why they are “ultimately the opportunity for an investor to generate the greatest returns out of the entire set of opportunities they see every quarter/every year”.