20 Questions That Every Investor Wants to Ask
January 13, 2022
Every business requires capital, and an investor is an angel with a golden ticket. So prepare yourself before walking into an investor’s cabin to present your startup idea. Don’t let the fear open the door of anxiety that makes your mind vulnerable against their curveball.
Any investor won’t flip a coin before any convincing pitch. We have curated the best possible method for determining the generic question that the investor intended to ask.
This ultimate guide of 20 questions will assist you in spreading the magic of a great pitch.
The 20 questions are listed below:
What is the earning potential of the industry and what is its rate of growth?
The investor is eager to understand whether the offer is worthwhile. What elements determine whether a prospect is significant enough? It usually comes down to whether or not the investor can achieve a positive return within a specific time limit (often three to five years). While each organisation has its investment requirements, many investors expect a return of 50% or more on their money. To acquire such a significant milestone, investors look for companies with massive market potential for their products or services. All investors favour growing markets over declining markets. Furthermore, many investors specialise in particular businesses, so they’ll be on the lookout for opportunities in those industries.
What is significant ideology in your business idea?
The two eccentric tricks are the secrete key to answer. This is because a firm might be both too common and too distinctive for a specific investor. The investor is so curious about the rivalry in the competition. If it’s too one-of-a-kind, the investor will be concerned about the time it will take to reach the accurate target audience. Many revolutionary products necessitate market survey and analysis, which may be a risky and time-consuming process.
What method did you use to determine market potential? How do you calculate the sales and growth rate of an industry?
It’s all too typical for entrepreneurs to include huge market potential statistics in their company plans, then claim that they only need a small proportion of that market to hit their revenue targets. These figures are frequently debatable. What is so great about the company if it just captures a small portion of the market?. Independent research, as well as bottom-up or top-down computations, should be used to backup market potential projections.
How can you tell if your company has a huge amount of potential?
They want to see a significant growth opportunity that scales quickly, allowing them to get a speedy return on their investment. Prepare to discuss the steps you took to estimate revenue from market potential in detail.
Why would someone relish buying your goods or service? What precise requirements does it meet?
Is your product anything that the customer requires? If your product falls into the latter category, you’ll need to show how it will gain traction, or how people will demand it as a result of market trends.
What is the higher education level of your management staff, and how do you make use of their abilities?
Investors seek three things in management: business experience, industry experience (or product experience), and strong character. What exactly is included in the second? The managers are the energy boosters in the team with full of passion, risk-taking abilities, integrity and resourcefulness. Humility is also an often ignored attribute; for example, occasionally entrepreneurs must step aside to let someone with more expertise head the project/company.
What are the primary obstacles to this opportunity?
When asked about the risks that their business potential faces, most individuals consider “the rivalry.” Changes in technology, political and regulatory limitations, labour market conditions (ability to locate qualified workers at a fair cost), business climate changes, product liability, computer crime, and other dangers are all possible. A business risk assessment of potential hazards to your company might assist you in preparing for investor scrutiny.
Who is your major competitor?
Never say any” could be a cautionary phrase when answering the above question. Investors are naturally curious about the level of competition your firm will face and how you plan to differentiate yourself. They may, however, be evaluating your business maturity. Because your firm nearly always has at least two competitors, the response “none” is usually inaccurate. Potential purchasers could either “do nothing” or continue to function without your goods (for example, by using a less effective substitute) (e.g. choose not to utilise the product or service). Furthermore, if the investor discovers opponents you haven’t examined (many have done their research), he or she will lose faith in your ability to analyse a business — so be ready.
What is your business vision to climb the competitor’s ladder?
Investors want to know how you plan to outmanoeuvre the competition, and this isn’t just about existing competitors. They want to know that you’ve considered potential market entrants and how you plan to combat them. When it comes to this subject, “first-mover advantage” is rarely enough. A better response frequently shows intellectual property obstacles or the capacity to reach the target market more effectively than the competition. What distinguishes your firm and gives it a competitive advantage?
Is there any valuable intellectual property owned by the company, such as trademarks, copyrights, royalties, and so on?
What do you have in your possession? What can you safeguard? These are two crucial inquiries. Patents are crucial in some industries for protecting a firm’s research and development investments and ensuring that the company has a window of opportunity to capture a major portion of revenue for a specific category.
When will your business become profitable and cash flow positive?
Do you recall the first time you were financially independent of your parents? You no longer needed their help because your income exceeded your costs. Hopefully, they didn’t have to be concerned as much about you. This is a related notion. When you’re financially self-sufficient, you’re also less of a risk to an investor. Profitable businesses are more appealing to potential purchasers and the public markets.
What is your detailed marketing tactics to gain new customers?
Marketing tactics that reflect an awareness of market realities and client behaviour are included in a well-developed business plan. You can expect to be asked questions like: How much does it cost your organisation to acquire new customers? Have you figured out what your average and target revenue per customer should be? Do you have any idea how many clients you’ll need to break even?
What is the arrangements and planning for customer relationship management?
Even before they attract consumers, the most successful businesses appear to have a strategy for maintaining customers. Most businesses’ long-term success depends on their ability to retain customers.
What factors influence consumer satisfaction in this business and with this particular product? What’s more, how do you know?
Have you done any research to determine what matters most to your customers? Do you know which product features are essential and which are optional? You’ll need systems to assure your clients’ continued contentment and your awareness of their changing demands once you’ve gained them. Have you thought about how you’ll support the product and the costs connected with that support? Will your current customers repurchase your goods or service? Will they tell others about it? To get answers to these kinds of inquiries, you need to have regular and consistent client feedback.
How are customers enticed with your services and product?
Do you see any potential stumbling blocks? Will you, for example, have to educate the buyer? Evaluate how you would reach out to your target markets with the help of distributors or dealers.
What types of alliances or collaborations have you formed?
Collaborations can be both assets and liabilities, so keep that in mind. The investor would be interested to know about the strategic alliances that have jeopardised your intellectual property claims, as well as if the company has any third-party obligations. On the plus side, you’ll want to show how alliances have aided your organisation in securing particular distribution or sales channels for your goods and services. Do any of your strategic partnerships provide you with a competitive advantage? Do they erect impediments to entry? Do they assist you in reaching out to customers more effectively?
What is your product or service offering’s expected lifecycle? What are your financial projections now and in the future?
Customers demand changes as products age, competitors offer alternatives, and competitors offer substitutes. Have you calculated when your product’s earning potential will be exhausted, both for first-time buyers and for follow-on sales to existing customers (e.g. upgrades)?
How do you want to increase your workforce?
Finding the most fervent employees is always a challenge, regardless of the specific conditions of labour markets. Investors will be curious not only about the makeup of your current personnel but also about how you plan to fill important jobs in the future. Have you worked with a search agency that specialises in executive placement? How will you compensate personnel to attract, inspire, and retain them while keeping labour expenditures in check?
What are the most likely circumstances for a successful exit?
Acquisition or IPO are the two most typical exit alternatives for a successful investment, and both have seen much less activity recently. Investors need to know how they’ll recoup their investment, ideally at a rate of 50 per cent or higher, therefore the exit strategy is crucial. When it comes to M&A opportunities, be both practical (especially in terms of timing and valuation) and imaginative.
What is the “Use of Funds” strategy?
The utilization in a proper segment is the crucial part and validating strategic alliances which might have jeopardised your intellectual property claims, as well as if the company has any third-party obligations. Include an explanation of how the funds will be used and what you will be able to do with them.