Top Questions Investors Ask Part 4

Top Questions Investors Ask Part 4

“People who ask confidently get more than those who are hesitant and uncertain. When you've figured out what you want to ask for, do it with certainty, boldness and confidence. Don't be shy or feel intimidated by the experience. You may face some unexpected criticism, but be prepared for it with confidence.” Jack Canfield

Being prepared can help you answer investors’ questions with confidence and certainty. This is the last in our four-part series of common questions investors can ask. While this is not an exhaustive list, we hope that it will help you be better prepared to ask for what you want with confidence. Today we will cover intellectual property, financials, and your financing round.

Your Intellectual Property, Patents or Trademarks

The intellectual property (IP) of your business can include trademarks, patents, copyrighted designs, and confidential information. Your company’s IP is extremely valuable; they can set your business apart from competitors, be used as security for loans, provide a revenue stream if sold or licensed, and can be an essential part of your branding and marketing. Here are some of the questions you may get about your company’s IP.
• What key IP does your company have?
• How was your company’s IP developed?
• Can the IP be liquidated?
• Are you looking at infringing on the IP of another company?
• Would acquiring IP from another company add value to your company?
• What proof or confidence you have that your company’s IP does not violate the rates of a third party?
• Is it possible that any prior employers of a team member have a potential claim your IP?

Your Company’s Financials

When you get to this stage, be prepared to walk an investor through your financials including your profit & loss statement, balance sheet, and financial model. It isn’t uncommon for an investor to request a special session for the financials and bring an analyst with them. Here are some questions you might get asked.

  • Which key metrics does your leadership or management team focus on?
  • Are there factors that have been or will limit faster growth?
  • How much burn do you expect to happen until the company achieves profitability?
  • Are you setting aside a stock option pool for employees?
  • What is the capitalization structure? How much equity and debt has the company raised?
  • What are the company’s three and five-year projections?
  • What key assumptions lead you to your projections?
  • When do you expect the company to be profitable?

Your Financing Round

This group of questions helps the investors get a better idea of who the other players are. They want to know how much money has already been raised (if any) and where it came from. Knowing what the equity structure looks like is usually a key component.

  • What will the proceeds from this round go to?
  • Are there existing investors and will they participate in this round?
  • Which round of funding is this?
  • How much funding are you looking to raise in this round?
  • Who holds equity and how much do they hold?
  • Have you done crowdfunding before?
  • Has anyone else invested in this round?
  • Has an accelerator or incubator already committed funds?
  • Does your company have any convertible loan notes?
  • What is your company’s desired pre-money valuation?

While it’s natural to be a bit nervous when pitching new investors, the best thing you can do is to be as prepared as possible. While our series is not an exhaustive list of possible questions, it can be an effective tool. Making sure you have answers to the questions in our series is a great place to start. We even recommend you take some time and practice answering the questions. As Jack Canfield says so well; prepare, prepare, prepare so you can ask for what you want with boldness and confidence.

Top Questions Investors Ask Part 3

“Success is where preparation and opportunity meet.” –Bobby Unser

Preparing to pitch investors can be intimidating but understanding the questions most likely to be asked can help you overcome your nerves. This is the third article in our series about questions investors commonly ask. Today we will cover traction and early adoption, any downsides or risks, and your exit strategy. These questions don’t represent an exhaustive list but can give you an idea of where you might need to spend some more time preparing.

Does Your Company Have Traction?

Traction can take many forms that can vary based on your business type. Having early traction of some kind can put you in a more favorable position with investors.

  • How many users or customers do you have?
  • What is your average churn rate?
  • What do you attribute the early traction to?
  • Do you have plans for accelerating or building on your current traction?
  • How many downloads, subscriptions, likes, shares, or sign-ups do you have?
  • Do you have any celebrity endorsements?
  • What is your social impact?
  • What is your engagement on social media?

What are the Downsides, Risks, or Threats?

Starting or growing a business of any kind is inherently risky, and there are always threats of some kind to consider. Investors are usually asking the following questions to test your tolerance for risk and your sense of where your business and the marketplace really is.

  • In Your Opinion, what are the principal risks in this business?
  • Do you have any legal risks?
  • Are there product liability risks?
  • Are there regulatory risks in your industry or specifically with your product or service?
  • Is there the capacity to distribute risk across your team?

Is there an Exit Strategy?

Investors are looking to make some money as well as being part of something they believe in. Therefore, they will want to get a feel for how and when they will be able to exit and earn the return on their investment.

  • Do you anticipate going public with an IPO or going the merger and acquisitions (M&A) route?
  • If you got the M&A route, who will be the likely acquirers?
  • Considering the given market comparables, how will valuation of an exit be determined?
  • Do you have any similar examples?
  • Financially, where do you see your company in five years? Where do you see yourself in five years?
  • When do you see this exit transition happening?

Some of these questions may really make you stop and pause. That can be a good thing. It’s important to think through some of these tougher questions you may not have considered before and know where you stand. For more preparation questions you can check out part 1 and part 2 of our series of articles. Next week we will be looking at the final three areas of questions: financing round, financials, and intellectual property.

Top Questions Investors Ask Part 2

Top Questions Investors Ask Part 2

“Be prepared, work hard, and hope for a little luck. Recognize that the harder you work and the better prepared you are, the more luck you might have.” –Ed Bradley

Searching out, pitching to, and bringing on investors can be a lengthy and involved process. You can make it smoother by being as prepared as possible. This article is the second in our series covering questions you can expect to hear from investors. We will include queries about your products or services, the competition, and customer acquisition. It is not a complete list, but we hope that it helps you prepare and have the smoothest process possible.

Your Products and Services
Your product or service is the core of what you are trying to get funding for, so now is your time to answer questions about what you created and are passionate about! Investors are looking to back something with a unique selling proposition (USP) that solves a particular customer problem.

  • Why should people care about your product or service?
  • What is different about your product or service?
  • Are you first to market?
  • Won’t a large corporation just build something like this?
  • If you are first to market, why hasn’t it been done before?
  • Were there earlier versions? If so, what did you learn from them?
  • Do you have patents secured or pending?
  • How do you plan on improving or adding on to your product or service in the future?

The Competition
You will always have competition, even if you are first to market. If you cannot identify your direct and indirect competitors, you are likely to have credibility problems with potential investors. A good rule of thumb is to be knowledgeable about your top 5 direct and indirect competitors.

  • Who is your company’s competition?
  • Are there barriers to market entry?
  • What competitive advantage do you have over your competition?
  • Does your competition have advantages over you?
  • Compared with other businesses in your market, how do you compete on price, features, and performance?

Marketing and Customer Acquisition
You may have the most amazing, unique, and desirable product or service, but if you have no way to market and acquire new customers, you are dead in the water. So investors are going to be very interested in how much research you have done on your target market and your strategies for making money through sales. If you haven’t released to the market yet, you will need to research similar companies and project based on the data.

  • How much does it cost to acquire new customers?
  • What is the lifetime value of a customer?
  • Have you done focus groups? What did you learn from them?
  • What are your social media and PR strategies?
  • What is your marketing plan?
  • Describe the typical sales cycle from initial customer contact through closing the sale?
  • What is the client’s cycle? Are there opportunities for up-sales or repeat business?

The more you know which questions you will need to answer, the more prepared you can be for a successful round of fundraising. In our first article “Top Questions Investors Ask Part 1” we covered questions about the big picture of your company, the founder(s) and team, as well as your market. In our next installment, we will look at your company’s traction, the risks and threats, and your exit strategy.

Top Questions Investors Ask Part 1

Top Questions Investors Ask Part 1

“To be prepared is half the victory” –Miguel de Cervantes

Whether you are putting together your pitch deck or prepping for an interview with an investor, the more prepared you are, the better. Especially if this is your first time through the process of investors and fundraising, it is easy to get overwhelmed and even a bit intimidated by the questions. So here are some top questions you need to be prepared to answer. Remember questions are good, it usually means you have piqued the investor’s interest. You can practice responding to these questions with your team until you feel comfortable.

Today, in part one of our series on investor’s questions, we’re going to cover general questions, founders, and available market. While this list is not exhaustive, we hope it gives you a place to start preparing.

General Questions
If you are using a fundraising platform like Crowdfunder, then these questions should be part of your pitch deck so when you get to talk to an interested investor, they may or may not revisit them. Investors want to know what your company does and why they should be interested. These are essentially your icebreaker or big-picture questions.

  • What does your company do and what makes it unique?
  • What big problem does your company solve for your customers?
  • How big is the market for your product or service?
  • How big can the company get?
  • What is your end game?

Company’s Founder & Key Team Members
For many investors, particularly in the seed or round one level, they are looking for the dynamic, dedicated leader with vision and a solid, experienced team. The types of investors you want to work with are the ones who are investing in a vision, a dream, a team, and not just in it for the money.

  • Who are the founders or founder and the key team members?
  • What motivates and drives the founder or founders?
  • What experience does the team have?
  • Do you plan to scale the team over the next 12 months?
  • Why is this the team to take this company to the next level?
  • Are there gaps in the key team that need to be filled?

Available Market
Investors are looking for enough growth potential to make it worth their investment. You will need to demonstrate that the market for your product or service is large and growing. Do your research! Be familiar with historical as well as upcoming trends in your market. Be prepared to be able to cite sources for your claims.

  • What percentage of the market do you currently hold (if any)?
  • What percentage of the market do you intend to take and what is your timeline for doing so?
  • What is the actual size of the addressable market?
  • Why does your company have the potential to increase market penetration?

In this article, “Top Questions Investors Ask” we’ve covered what kind of general company questions are common. We also touched on what you need to be prepared to answer about your team and the market. In our next article, “Top Questions Investors Ask Part 3” we will cover questions about your products and services, your competition, and customer acquisition.

Who Does Equity Crowdfunding Work Best for?

Who Does Equity Crowdfunding Work Best for?

Do you have a great business idea you want to get off the ground? Is your company ready to jump to the next stage of growth? Do you want to launch a new product or service line? If you answered yes to any of the above questions, congratulations!

These are all stages when it’s common for business owners to realize they will need an influx of cash to make their dream possible. Equity crowdfunding is one of the fastest growing methods for raising capital but is it a good fit for your company or business idea? Answer the questions below and see for yourself.

Do you have a plan?
The importance of having a solid business model or plan cannot be overstated. There are different types of business plans and methods for developing them. Regardless of which direction you go, the plan should include the items below:

  • Company description
  • Market analysis
  • Organization and management
  • Service or product line
  • Marketing and sales
  • Target market(s)
  • Funding request
  • Financial projections

Are you prepared to not own 100% of your company?
Equity crowdfunding is not like “traditional” crowdfunding where investors are donating an amount of money for a prize or a discounted rate for the product. With equity crowdfunding, investors get to own a percentage of your company in exchange for the money they are putting into your business. As the business owner, you can determine the amount of equity you are willing to give away to investors. For example, you can choose to allow investors to own 15% of your company and you retain 85% ownership. Understand though that there is a direct correlation between the amount of money invested and the percentage of ownership. Usually, the more money you are asking for, the more of your company you will have to let go to shareholders.

Are you ready for the accountability?
As we mentioned before, you will have shareholders. These are the investors who have given you their money and now own a percentage of your company. This means you could have a group of people you need to communicate with on various topics including how the company is performing. If you want complete autonomy and the idea of being answerable to a group of shareholders is not appealing to you, then equity crowdfunding may not be a good fit for you.

Are you ready to participate?
Companies like Crowdfunder provide a platform for you to connect with investors, but this is not a “build it and they will come” scenario. To have a successful, public, equity crowdfunding campaign, you must be willing to be an active participant in the process of building and maintaining momentum. A plan for marketing your campaign and getting it in front of investors is a must. An effective campaign includes but is not limited to the following:

  • Create a dynamic company profile on the platform
  • Fill out the investment profile
  • Tell your story! Investors often want more than just numbers to invest in they want to invest in you. Connect with them by sharing your story
  • Leverage social media like Facebook, Twitter, LinkedIn, etc., to raise awareness of your public fundraising campaign
  • Actively follow up with interested investors

Equity crowdfunding is not a good fit for every company, but if you answered yes to the questions above then come check out or platform! We’re excited to get hear your story and work with you to get your dream funded.

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