Questions to ask before investing
Before making an investment, you need to objectively assess the company you are interested in and its chances of success before making a decision. There are many questions to ask before investing and be answered before investing and in order to reduce the risk associated with your investment, you should ensure that you diversify your portfolio, investing in companies that are different stages of maturity but also fall into different sectors of activity.
Other elements, inherent to every project, should also guide your decision. How to determine it? What are the most important questions to ask business leaders? How to assess its ability to develop its business sustainably?
These 10 questions to ask before investing will allow you to refine your criteria as an investor, to better understand the answers of entrepreneurs and to refine your investment choices.
1. Who are you addressing your product to?
Having an idea is good, developing a prototype is even better, but you still have to know to whom the entrepreneur wants to sell his innovative product. Identifying targets and prospects makes it possible to identify and quantify the market addressed by the startup. Thus, the investor can easily identify the depth (maximum size) of the local market and the foreign market targeted by the entrepreneur.
2. What is your business model?
The business model is one of the most defining aspects of a business. Where will the company’s revenue come from and when will it break even? The manager must be able to answer you, thus allowing you to foresee the development and the possible new capital needs that the company could meet in the future.
3. What is your differentiating element compared to your competition?
When a market is identified, then competing players emerge, an essential source of information as to the breakthrough of the market by the startup in question. The competitors have identified development strategies, they have certainly had successes and failures which must be studied by the leaders.
In addition, the entrepreneur must have a clear idea of his differentiating element compared to his competitors, it is certainly this factor that will allow the company to win market share.
4. Do you have one or more associates?
The structuring of the founding team is very important, it is advantageous for the founders to have different and complementary skills and abilities, this will only serve the project more in its development. The founding team is one of the key markers in the seed phase of startups and can lead to the slowdown or failure of the company if it does not share the same vision or does not submit to the same Goals.
Read also: Mergers and acquisitions: how does it work?
5. What is your development plan?
The business development timeline should be very structured from the start. The entrepreneur will have to manage many aspects, which will determine the existence of the company: administrative, commercial, marketing, filing of patent(s). The timeline set by the entrepreneur must be realistic and he must be able to establish action times and many delays are to be expected, particularly concerning administrative and legal matters. The development schedule requires resources and very quickly the entrepreneur must determine the tasks that he must entrust to specialists and those that he can manage by himself.
6. What drives you to undertake this investment?
The choice of entrepreneurship as a professional activity is motivated by various reasons. Each woman or man embarking on the adventure of business creation is motivated by personal reasons: to develop an innovative idea, to be their own boss, to give meaning to their activity, to be independent, to make money, etc.
We can underline two distinct visions which do not necessarily oppose each other, they imply only two development strategies and underline the interests and motivations of the entrepreneur.
-the “short-termism” vision of quickly developing a business and reselling it quickly.
– the “long-term” desire to develop and structure its business in a sustainable and scalable way.
These two development strategies can be beneficial for the investor, he must only be aware of them and appreciate them in order to know if the development plan can be correctly carried out in the schedule planned by the entrepreneur.
7. Why not work in one of the leading companies in your market?
This question is crucial, in reality it is necessary to be able to measure the investment of the entrepreneur, his ability to manage the challenge of entrepreneurship which brings its share of difficult times. Generally, the entrepreneur has to face many problems which implies that he must be passionate about his activity, not count his hours, accept many sacrifices for the benefit of his business development without forgetting a decisive personal financial investment. in the eyes of potential future investors.
8. Which key partners have you managed to convince to frame and optimize your offer?
Succeeding as an entrepreneur also requires knowing perfectly the ecosystem in which one evolves, knowing and exchanging with the other actors of the place, the communication relays of all types, the institutional partners and his banker at the same time. This aspect is closely linked to the state of mind of the entrepreneur and to his intrinsic qualities as an individual.
9. How would you get potential investors out?
The future projection of the company according to the vision of the entrepreneur is a key element for potential investors. Indeed, the development strategy of a company varies according to the intention of its founder, if he chooses the optics of reselling quickly to important industries of the market he will not adopt the same strategy as if he plans to develop its turnover in such a way that the company generates significant profits.
10. Are you the man of the situation likely to succeed in this bet?
Several individuals can hold the same idea and develop it at the same time, however not everyone will have the necessary resources or sufficient skills to achieve the alchemy of success. Many hazards can arise, often they are not foreseeable and yet the entrepreneur must appear as the best candidate to meet these challenges. How much money can you loose? How much money do you have in your savings account? How long can you live with that savings?
We hope with these 10 questions to ask before investing will help you to refine your criteria as an investor, to better understand the answers of entrepreneurs and to refine your investment choices.