HubSpot recently partnered with AWS to speak with key venture capital firms, seed investors, and angel investors about some of the most important things founders should be prepared to answer during pitch meetings. Here are 19 of the hardest questions seed-stage founders might come across, along with guidance for crafting your responses.
Are you ready to test yourself? Give these prompts a try before your next investor meeting:
1. Your market is super crowded–what’s your win rate against competitors, and why do you win?
This one is pretty straightforward. When your product goes up against your competitors, how often do you beat them out, and how often do you not?
Are the reasons that you do win because of a superior product or service? When you lose business to a competitor, what typically is the cause? Is it something to do with your product’s current capabilities? Or perhaps because of a lack of resources, whether it be funds or personnel? Perhaps the competitor’s brand affinity/awareness is what gives them the edge.
Consider how working with this investor will prevent this from happening in the future and use it to craft your answer.
2. What are your intended uses of the capital you’re raising, and what will that grow the business to?
You will absolutely want to have a slide in your pitch deck that covers, at a high level, where you plan on spending all your money over a given time span. But you will also want to have a much more specific plan of exactly how this breakdown would occur.
You don’t need to get crazy with the details, but you should know enough that someone would feel confident giving you their money.
3. Are you or your team the strongest to lead this business?
The truth is that many great ideas end up biting the dust because the team pursuing them simply wasn’t the right fit or could not grow into the right team. That’s why you need to accomplish two things in this response:
First, explain how your co-founders’ experiences lead them to the idea and have set them up for success. Avoid using anecdotes and one-off experiences; rather, you should focus on long-term experiences and learnings.
Second, recognize where you have skill gaps and discuss how you will address and work on these. What skills do you plan on bringing to your team through future employees, and where do you intend to source these employees if you haven’t done so already?
4. What do you see as success for your company?
Investors aren’t looking for small successes. They want home runs. If the plans you are projecting don’t show significant potential growth, ask yourself if you need to be more aggressive in your goals; or if VC funding is the right move for your company right now. But your numbers should also be defendable—you must make a case for why you think you can hit those numbers.
You also need to give an idea of your end goal for the business. Is it to be acquired? If so, what sorts of similar acquisitions have been made, and for how much? Or is the goal to reach IPO? Your goals may change over time, but you need to know what they are at the time you ask for funding.
5. Do you know {insert company name here}? Why not?
If you have not heard of a competitor the investor mentions, you must own up to that. It might be a small competitor or a business you don’t feel is a competitor to you. Regardless, it might be seen as a competitor in the eyes of your audience.
Admit when you don’t know a company and clarify that while it may not have met the requirements of a competitor during your original search, you will look into it in the future. Don’t pretend to know everything, and don’t hesitate to ask questions.
6. Why haven’t you gotten traction so far?
If you haven’t gotten any traction by the time you are talking to VCs, you are probably approaching VCs too early. The VCs are not there to give you success but to put fuel on the flames of success you have already started.
If you think you might be approaching VCs too early, take some time to re-evaluate, focus on early growth, and approach at a later time.
If you have gained traction, explain this to the investor and make sure it comes through on your initial pitch. Your pitch deck should always be changing as you receive feedback.
7. How are you planning to grow?
This is one of the most important questions an investor will ask and often one of the most difficult to answer. You’ll need to clearly inform them how getting capital will accelerate your growth.
How will more money and headcount enable you to do things you can’t right now? Don’t be afraid to get into the details on this one. What are specific examples of situations in which more access to funds would have helped you grow better or faster? Explain how these situations are not just one-offs but speak for your overall situation.
8. What is the greatest challenge your company is facing right now?
The right way to answer this question is to be completely honest while looking toward the future. Investors are not looking for you to hide facts from them–like most people, they’d rather take the risks they know than the ones they don’t. Investors want to know that you are recognizing problems and planning how to overcome them.
Think about what issues are currently keeping you up at night and how you have thought through them to date. While you want to show humility here, you also want to project confidence in the direction you are headed.
9. How long will it be before I capitalize on my investment?
This can be a tough question to receive because the truth is that no one really knows the answer. Still, it’s important to think through an answer to this question and come prepared with a possible timeframe, even if it’s rough.
How long are you planning to take before your investors start to see the rewards from their investment? Will this involve an IPO or an acquisition? What is your long-term plan in this regard? What sort of financial projections do you have, and what data informs them?
10. Why now?
Many of the biggest companies succeed in large part because of their timing. Microsoft and Facebook could never have grown the way they did if the timing wasn’t right for them. So, why is the timing right for your company now?
What factors in how people buy/sell, in technology, in the market, make it the right time for this idea? What data support this assumption? Using other company examples that have inspired or influenced the creation of your company can be very helpful here.
11. What is your vision?
Many startups get confused about the difference between mission and vision and end up hurting themselves on both accounts. While a mission describes what your business does and how you do so, a vision describes the future of the business and where you want to go.
Make sure you nail both of these when asked this question by taking time to prepare a vision and mission beforehand with your team.
A great detailed description of the two and some well-known examples can be found here.
12. Why isn’t your company’s growth stronger?
This is a tricky question because it can often put entrepreneurs on the defensive, which leads to emotional rather than rational answers. In fact, this question is a terrific opportunity to explain further why your venture deserves and needs additional funding.
The key to an amazing answer is honesty and highlighting future growth potential. You also want to explain the factors that have held you back from success and how having greater funding could have helped your business then.
13. How do you track trends in your market?
Since you are requesting investment for your startup, you are expected to be a bit of an expert in your market. This means that you probably consume information from a variety of sources: people, Google alerts, newsletters, stocks, industry experts, etc.
Before you go into an investment pitch, it’s a good idea to take a mental note of all the places you consume information from so that if you are asked this question, you come across as what you are: an expert.
This question is also a good opportunity to express some humility and a growth mindset by asking investors if they have more sources they’d recommend using to track trends. It’s never a bad idea to take notes during an investor meeting to capture feedback.
14. Can you tell me a customer success story?
In theory, this should be a pretty easy one to answer. Typically, new companies are well in-tune with their customers and have at least a handful of stories to pick from. But there are a few things to keep in mind when choosing the specific story you might want to use:
First, make sure you choose a real and credible story. The investor could request to talk to the customer, and you want their story to align with yours.
Second, make sure the story is relatable and something many people could understand as a pain point, even if the investor lacks experience in your industry.
Last, choose a story that shows how success for customers with your product or service is scalable. Choosing a story that shows great success for one customer but could never be scaled for all or even a decent number of them isn’t truly a story of repeatable customer success.
15. How do you believe your product will shape the market in the next 5 years?
The biggest VC successes truly reshape or even create a market. You want to demonstrate that your business has the same potential to change or define whatever industry it’s in.
It’s helpful to picture your company as having achieved its 5-year goals. How has the industry changed around your company? What sorts of businesses have popped up that are secondary and reliant on your own? What competitors have started to appear? Has your company influenced any legislation?
16. What are your biggest mistakes so far in this venture, and how have you learned from them?
With this question, VCs are really trying to learn more about your humility and growth mindset. Really think about the mistakes you have made so far in your venture and how you would approach these situations if you were to encounter them again. Be honest, and don’t try to hide your mistakes. Owning your missteps and showing growth from them is much better than pretending to know everything.
It’s a good idea to test your response on someone that is less involved with your company. Often we have blind spots we can’t see until someone else reveals them.
17. If you realize in a few years that you are not the right person to lead this company, what will you do?
Believe it or not, this happens all the time. Up to 50% of founders that start as CEOs are no longer in the role after 3 years. Investors want to feel confident that if you are going to leave this particular role, you are still invested in the success of the venture.
If you choose not to lead the organization, you need to recognize that finding a proper leader is a process that will take a lot of time and input from other people, such as investors. You should demonstrate how you would try to make this process as seamless as possible and talk about the people you would lean on to make this decision and transition.
18. Why hasn’t this worked in the past? What sets you apart?
Most ideas have been attempted by others in some regard in the past. It’s important to highlight why these particular ideas failed in the past and why you will learn from these mistakes so that you do succeed.
Did previous attempts fail because they didn’t have the right team? Was their customer acquisition process wrong? Did they not have the funding/support they needed? Was the timing wrong at the time? Was their business model different?
19. Have you ever been fired from a job? Tell us about that time
As with every question an investor asks, this is simply another opportunity to demonstrate your strength of character. Getting fired is not necessarily something to be ashamed of and can always be a learning experience if approached with a positive mindset.
If you have ever been fired from a job, think about what you learned. Don’t immediately go blaming an individual or company. Instead, think about the situation and why you were not set up for the best success you could have been. Focus on what you could have changed to improve this situation and how you’ve grown as a result of the experience.
So, how did you do?
Hopefully, these questions helped challenge your pitch and spur useful research into your industry and your company’s history.
If you’re looking for more founder-focused resources, from templates for pitch decks and financial forecasting to industry reports and ways to save money, check out the full HubSpot for Startups Resource Library.
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