When venture capitalists or angels are considering investing in a company, they ask many questions. Their questions usually are focused around understanding the four basic risk startups face.
- Management Risk: Investors are trying to understand if you and your team are the right people for this opportunity. Key questions:
- Do you have deep experience in the industry you are entering?
- Do you have previous startup experience?
- Will you listen to advice from your board?
- Technology/Product Risk: Investors are looking to see if you have a good product that will give your company a competitive advantage. Key questions:
- Is there any intellectual property around the technology, such as patents?
- Is it difficult for your competition to replicate your product?
- Does the technology actually work? Is it defensible?
- Market Risk: Investors want to know if you are attacking a lucrative market and have a good go-to-market strategy. Key questions:
- How big is the market?
- Is the market growing?
- Are you solving a major pain in the market?
- Is your go-to-market strategy reasonable?
- Funding Risk: Investors need to believe you can execute your plan with the amount you are raising. Key questions:
- Is this too much or too little of a raise?
- Is your use of funds strategy realistic?
- How long is your runway?
- Will you have to raise another round in the near future?
Before you hit the fund raising trail, ask your self these (and other) tough questions. If you don’t have good answers, find things you can do to mitigate concerns investors will have. Anything you can do to reduce these risks will increase your chances of successfully raising capital.