Wed. Aug 3rd, 2022
    Fundraising | Questions an investor will ask you when raising funds (financial advice)

    Fundraising

    The fundraising is a to process raise funds by soliciting donations from individuals, companies, charitable foundations, or government agencies. Although the term fundraising normally refers to efforts to raise funds for non-profit organizations, it is also sometimes used to refer to the identification and solicitation of investors or other sources of capital by for-profit companies, as do, for example, banks in their campaigns.

    Fundraising, includes all operational, conceptual and raise strategic activities to build relationships with the purpose of resources. Beyond the narrow focus on the procurement of resources, fundraising is also understood as the systematic development of relationships to support a social cause (a mission).

    We have all found ourselves in a situation where faced with an unexpected question, we start to lose our means. This moment of solitude, you could once again experience it in front of an investor when you are doing fundraising. To form a conviction, THEY will ask you a bunch of questions, many of which are recurring. Here are some examples of questions an investor will ask you when raising funds!

    These 10 questions an investor will ask you when raising funds

    Example of investor questions during fundraising!

    This is why this phase is arguably one of the most critical in your process. Without interest from the investor, no waiver! Here is a sample of 10 questions and some ideas to prepare you to answer them.

    # 1 What’s your vision?

    It may sound without originality or even un-philosophical! And yet, this is an important question that many entrepreneurs take lightly. Your future investors, especially VCs (VC=Venture Capital), want to support startups with a long-term vision. In other words, they want to know where you see your business in 10 years. Still in place? Sold to a large group?

    Your answer will reveal your state of mind and your ability to project yourself into the future. If your goal is to sell your software to Salesforce or Oracle at all costs, your ambition might not be so great. Be clear about your intentions and show that your one and only goal is to create a great box.

    # 2 How did you meet your co-founders?

    We cannot say it enough, venture capital is a human story. This is all the more valid in the seed phase where the numbers and the hindsight are almost non-existent. So they want to make sure that the money invested is in good hands and, if possible, the hands of a tight-knit team that is not going to implode overnight under pressure.

    If you say that you met through a network (Linkedin, Shapr…), you will present a profile at risk. If this is your case, emphasize complementarity. Conversely, if you’ve grown up together and you know each other inside out, you already offer more guarantees. It’s also a great way to build empathy. Finally, if you’ve worked together before, that’s a plus. It means you can create together.

    # 3 How big is your market?

    This is an essential point. Why ? Because it will determine if you are “VC (Venture Capital) compatible” or not. Put yourself in the shoes of an investor for 1 second. It will finance around 15 companies during the life of its fund. At least 2/3 of them will go bankrupt. The other startups, in which he will hold 20% of the capital (hypothesis), will not only have to compensate for the losses but also allow him to make money. It’s a matter of survival for him. You will therefore have to demonstrate that you have correctly quantified your market.

    For example, if you are a supply chain software publisher, don’t start saying that the software market is valued by Gartner at billions. This is not your market. Rather, the correct answer is “How many companies / people can I actually sell my solution to?” “Use your calculators!

    # 4 Who are your competition and how are you different?

    This is a double-edged sword. You have to talk about the competitors and therefore give some elements of comparison, without denigrating them. Explain what they do best and say how you are different. In other words, be objective and avoid being arrogant. So avoid saying that you have no competition. There is no such thing. If you are unable to admit it, it may be sending the wrong signal.

    # 5 What are the risks that you have identified for your business?

    Again, the investor is gauging your ability to appreciate your environment as a whole. To be aware of your strengths and weaknesses is to demonstrate humility but also intellectual honesty. These are qualities sought after by investors and which are the preserve of great entrepreneurs.

    Knowing how to list your risks means being ready to respond to them. If you can demonstrate that you are able to react in different crisis situations, you will score points.

    Read also: Balance Sheet | Definition, Structure, Example, Free Template

    # 6 What is your go-to-market strategy?

    You have a great product, but the investor in front of you wants to know how you are going to sell it. Logic. This kind of question is especially valid for a startup that wants to attack several market segments at the same time. Usually, this is not a good sign. Why ? You risk having a flawed business strategy.

    For example, if you sell management and accounting software to French CAC 40 groups or New York Stock Exchange and SMEs, you are likely to have problems managing your sales teams and keeping a consistent message. Not to mention that they do not have the same needs / expectations.

    Likewise, your focus will not be optimal, whether it is to refine your sales strategy or take into account the numerous returns of your prospects / customers. As a result, you will lose speed, speed of execution and squander your cash. What your investor wants is a simple strategy and you explain to them why you think it is the right one for success.

    # 7 Why now?

    The question of timing is important. You may have a perfect solution that meets a real need, but it won’t sell if market conditions aren’t right. When an investor asks you this question, tell yourself that they’ve probably seen startups similar to yours fail before. What he needs to know is why you think now is different?

    Take the example of Cloud gaming, which has been gaining momentum for 2 years. It is no coincidence that Apple, Google or Microsoft are entering this market now. What has changed ? Technology, networks (but not only). With the deployment of fiber optics and 5G, access to this kind of service is now possible, without sacrificing the player experience.

    A few years ago, network technologies but also PCs were not yet mature. Today, this mode of consumption is seen as the future of video games. This is why timing is crucial for a VC.

    # 8 What are your KPIs and how do you measure them?

    Behind this question actually hides several things. First, he really wants to know your KPIs. To see the trend but also to be able to compare them with other startups. Then, he wants to know if you are managing your activity correctly and if possible, with the right indicators.

    Each industry has its own KPIs and they want to make sure you know them. Why ? Because if you’re not data driven, they’ll think you’re the wrong person to grow the business.

    # 9 How much have you lifted (raises) so far and under what conditions?

    Basic question and totally justified. No need to panic. Just answer simply.

    If you want to be successful about your fundraising: BE Optimistic Doesn’t Mean Lying:  Don’t lie to yourself or those around you about negative setbacks or other things that could be considered disappointments; instead, try shifting your perspective from that of giving up or feeling defeated to moving forward and feeling empowered to do better than before.

    # 10 What milestones are you targeting after this fundraiser?

    Before financing yourself, the investor will want to know not only the allocation of funds you are considering but above all, the expected return on investment. Of course, you will be tempted to talk about your technical roadmap, the recruitments you plan to make, office openings…

    These are important topics and to think carefully about them makes perfect sense and healthy. However, what will they allow you to accomplish financially? Will these developments be enough for you to become “Series A compliance or Corporate Compliance Series”? In other words, if you raise $ 400K for your seed but you do not plan to approach the million in turnover in a 12-18 month horizon, it may lack ambition for a VC. Remember, VCs are all looking for the future “unicorn” when doing fundraising.

    Get into the investor’s shoes to answer their questions

    These questions were just a taste of what to expect. Often times, this is when tricks fail… but there are other factors that can reduce your chances.

    So how do you prepare for it and gain credibility on “D” day? You just have to put yourself in his shoes. Take a little height.

    Here is a simple method to prepare you for investor questions concerning your fundrising:

    • List the weak points (real or supposed) of your project by category: product, market, commercial strategy, team, business model, etc.
    • Build a list of questions by category
    • Then challenge each slide of your deck with 2/3 questions, as if you were the investor
    • Prepare answers
    • Train in front of your associates
    • Obviously, you won’t think of everything. It’s normal. You will therefore have to write down all the other questions that you will be asked during your roadshow and prepare answers. It may seem a bit time-consuming, but it’s the preparation that will make all the difference between you and the dozen other startups your interviewer will meet.

    Business Incubators and Accelerators | Innovation Laboratory


    Sources: PinterPandai, GoFundMe, Milaap, Charities Aid Foundation (UK)

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