Readying your slide deck for a VC pitch?
In addition to a killer presentation, you need to be able to answer some specific questions.
Having raised venture capital for my first company, Wordstream (which sold for $150 million last year), I've got the inside scoop on the exact kind of questions investors will ask you.
These are questions she asks herself when evaluating a business, essential insights for any founder looking for meetings for funding.
Take a look at 10 questions investors are wondering across the table -- even if they don't ask them out loud.
1. Is there a big enough market opportunity for your pitch to be compelling?
"What is compelling depends on the size of the fund. Given the risk involved -- the majority of startups fail -- many investors expect any single investment to return the entire fund. So we want to know if you can demonstrate realistic sightlines to that number," explains Parul.
"We're not expecting you to map out all the revenue projections until that point, but you need to show that A) you can build a real business, and B) you're tackling a believably big market opportunity ('believably' here means that you're not pointing to the total spend in your space as the market opportunity)," says Parul.
2. Is your ask compatible with what the fund invests in?
"Are you raising a series B round, while we only invest pre-seed and seed?" asks Parul.
Make sure to research what rounds the firm invests in.
3. Does your idea conflict with anything else in the fund's portfolio?
"We take pride in serving the best interests of our portfolio companies," says Parul.
If you don't even take the time to check whether the fund has potential conflicts of interest, it's a clear indicator that you didn't do your homework -- and a huge red flag.
4. Are there any obvious obstacles to succeeding in this market?
"As investors, we are looking for the best opportunities for our own investors. Most investors will favor a sector where there are acquisition possibilities and where you can grow quickly," says Parul.
If you're in a sector where you need to spend years getting regulatory approval or closing deals, never fear: While other investors may be dissuaded, there are investors who specialize in projects of that nature -- just make sure that you seek them out.
5. Do I believe in this team?
To "believe" in a team, Parul needs two things:
1) Compelling evidence that the team can execute. For example, can you show traction or LOIs from potential customers?
2) Meaningful commitment to the concept. Have you taken the plunge to be a full-time founder?
"While there absolutely are financial constraints that may prevent founders from leaving their jobs, I'm left wondering if you are asking me to commit more than you have," says Parul.
"If you want to steer toward financial prudence, moonlight on your idea until you have some traction you can bring to the table -- or pre-sell your company to customers, not just me," she says.
6. Is this product or service exceptional?
"Rough edges are fine on a B2B product, where a clearly expressed value proposition matters more," says Parul.
Enterprise B2B customers generally will cut you slack when it comes to the UI/UX of your product, since their primary concern is to solve their business problems.
"But if you're going direct to consumer and your product and brand don't feel world class, I might question if you have what it takes to retain the average consumer," says Parul.
7. Are the founders knowledgeable about key market dynamics and competitors?
"This advantage may not be as evident in an early-stage startup (where founders are wrestling to get product, sales, and team mechanics to work), but as a company grows, competitiveness increasingly matters," says Parul. "The No. 1 and 2 players in a space typically may win big, while other companies may not make it at all."
Investors want to be confident that you know the big-picture dynamics that will affect your company long term so that you'll be able to beat out your competition.
8. Is there founder/market alignment?
"Your deep knowledge of your space is your unfair advantage -- we've seen this time and time again with our most successful companies," says Parul.
For that reason, investors always want to take a deep dive into why a founder is tackling a particular problem.
9. Do I want to commit to this problem for the next few years?
"Growth is a process that can take time, and there will be times that you and I both question our commitment to the problem," says Parul. "Beyond just the hard metrics, most investors want to truly care about the problem you're solving."
10. Am I excited about working with you?
"In a world of inflated metrics and Steve-Jobs-channeling bluster, VCs crave honesty -- in other words, do you treat me as a partner, or are you only telling me the good stuff?" says Parul.
From an investor's perspective, working together will be much more meaningful and effective if the prospect is willing to be transparent and solve hard problems together.
Now you know exactly what investors are thinking about as they listen to your pitch. Use this insider information to power your VC pitch and communicate more effectively with the panel deciding your fate!