15 Questions Venture Capitalists Will Ask Every Start-Up Before Investing
Have you ever wondered what questions venture capitalists will ask, when they listen to your pitch? When a venture capitalist decides to invest in a firm, they have to consider many factors to make a well-informed decision. The reason start-ups get rejected by venture capitalists is that they don’t pass the filters set by venture capitalists.
There can be plenty of reasons why venture capitalists don’t find a firm worthy enough for an investment. What will be the desired level of profit, the growth strategy, marketing plan? There are plenty of questions that fiddle in the minds of VCs.
Even if a company falls into the desired investment level of VC, they still have to go through a round of Q&A session. It will determine whether the company is worth an investment.
Here are 15 crucial questions venture capitalists will ask the companies who are seeking funding.
#1 Does The Company Have A Great Management Team?
A management team is the backbone of a company that can help it grow in leaps and bounds. Many investors prioritize a great team over the idea of a startup as the key to success. The VCs will determine a team’s potential, including their experience, skills, zeal, and dedication towards the company. VCs will only favor the company if they are satisfied with the team.
#2 What Is The Market Opportunity? Is It Big Enough To Drive Profit
Most investors are interested in companies that are scalable and possess the potential to grow big in the market. As a start-up, you must have a staunch objective and great potential to grow in the industry. Presenting small and meaningless ideas will not give a superior edge. Instead, the company must have big plans to sustain and succeed in the market.
#3 What Tractions Has The Company Got So Far?
The early traction or customers the company can bag make a significant difference to the investment decision. VC wants to determine whether the early traction can get a further acceleration. The early buzz the company creates will help in highlighting its capabilities amongst the VCs.
#4 How Passionate Are Founders?
Founders are the pillars of strength in the company. They are the ones who lead the company, and it is essential for them to be passionate about everything. The way they pitch themselves and their company in front of the VCs defines their passion for their business.
#5 Do Founders Understand Finances and Key Metrics?
It is not only about being passionate and motivating others, founders should be able to deal with the financial intricacies of the company. VCs will determine whether or not founders understand how to tackle the money and make good use of it. When founders intellectually talk about the key metrics and how they plan to articulate them, VCs instantly attract them.
#6 Were There Any Referrals By Colleagues?
Believe it or not, referrals do work amidst venture capitalists. They are bogged with tons of pitch decks and summaries, and many of them are left unopened. The ideal way to capture their attention is through referrals. So, VCs will ask entrepreneurs whether they have any referrals to reduce the formalities.
#7 Was The Pitch Deck Intriguing And Professional?
Before having a one-on-one discussion with the company/entrepreneur, VC will look into the pitch deck. They would expect a 15-20 pages pitch deck to illustrate every key aspect of the company. It is the first point of attraction, and that’s why it should be promising, exciting, and extremely professional.
#8 Are You Aware Of The Potential Risks?
Every business has certain risks, and the sign of a visionary entrepreneur is when he/she understands those risks. VCs would want to know the potential risks of the business and how they plan to overcome them.
#9 What Makes The Product/Service Great?
One of the crucial questions venture capitalists will ask is why the product/service of the company is worth an investment. Entrepreneurs must be able to smartly articulate why the product/service is unique and cater to the dynamic customer requirements.
#10 How The Investment Capital Be Used And What Will Be The Progress?
It goes without saying that VCs would want to know how the capital will come to use in the company. Understanding this will allow the VCs to know whether the company will generate profit and achieve new milestones.
#11 Is The Valuation For The Company Realistic?
Unreasonable valuation of the company will never bring any good. VCs will check whether the value entrepreneur is putting on the company is realistic or not. However, it is not wise to put a valuation at an early stage. SAFEs are a great instrument to bridge the valuation gap.
#12 Is The Company Technologically Forward?
Today technology is what sells in the market. VCs will ask whether the company has superior technology to grow in the industry. The uniqueness of technologies is vital for sustainability. The use of technology determines the company’s competitive advantage.
#13 What Are Intellectual Properties of The Company?
Intellectual properties include copyrights, patents, domain names, trademarks, etc. VCs will check all these properties and ascertain it is not violating the third-party rights. They will also want to know how the properties were acquired.
#14 Are The Financial Projections Realistic?
There should be financial projections that entrepreneurs will present to the VC. It is essential to highlight the potential of a company to grow. There should be a complete blueprint of the growth plan to satisfy VCs.
#15 Does The Legal Formation Complying With The Laws
Last but not least, it is crucial to ascertain the legal compliance. There should not be legal chaos in the company to hinder the investment decision. Before pitching, the company should ensure it is passes the legal due diligence.
The Bottom Line
Venture capitalists cannot simply invest in any company that comes with a funding requirement. Many factors need to be considered before VCs invest. They will keenly examine the operations and strategies of the company to decide whether to invest or not.
There are a few questions venture capitalists will ask to get a clear understanding of the company. Whether you are a start-up seeking funds or venture capitalists filtering through companies, these questions are mandatory to be prepared with.