“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.