Here are three common variation of questions asked by VCs and how your business can prepare to answer each.
Startups and small businesses are always on the lookout for ways they can find new funding. Getting a business off the ground can be costly so angel investors, venture capitalists, partners, family and friends are all routes considered. Finally getting a meeting with a VC or private funding firm, you're essentially taking part in an interview, just as you would be if you were applying for a job at their company. After all, you have to sell how investing in your business will benefit them. Just as with any new investment, you want to know the risks, rewards and the research behind it all. Investors are no different. Here are three common variations of questions asked by VCs and how your business can prepare to answer each.
How Will You Acquire Customers/Users?
Perhaps the most common question -- venture capitalists want to know just how your business will gain new customers. This question isn't about your product or idea. This is a question to discover whether you are going to be willing to put in the work required to market your product or service and make sales. Growing a business isn't easy, but new customers help you get there. If you have examples of how you gathered your current customers, i.e. your customer base, use that and talk about scaling it towards a promising and realistic goal. Use the data you have. You need to be prepared to talk about estimated customer acquisition strategies, targets, timeframes, costs and expected results. An in-depth analysis of who your target customer is and what it takes to acquire them are necessary data points you need to be prepared with.
What Is Your Business Plan?
If you were to go to a bank, they would ask you the exact same thing. Be prepared with current financial reports, data-driven expected growth, and business potential. How is your business planning to make money, adapt, and penetrate the market you're entering? Your business plan should include the pain points you plan to address, how you plan to address them and the pros and cons of moving forward down this route. Knowing the potential risks is as important as knowing the potential success. Acknowledge that you understand what risks are being taken and have a plan for addressing any potential issues. No businesses is fool-proof and VCs want to see a logical, yet optimistic approach to potential setbacks that could take place. Demonstrate your financial knowledge and knowledge of your target market.
Related: 7 Best Free Business Plan Templates
What Makes You Different?
Even though this is one of the most difficult VC investor questions to answer, you need to have a good response. A thorough competitive analysis and unique value proposition are a must. Make sure you've done extensive research into how your business, product, or service stands apart from available other options or how you'll be filling an untapped niche. Know what exactly you're offering, what technology you have at your disposal, and what your team contributes can help you communicate exactly what it is that makes your business special.
VCs don't want to be bored and chances are they're responding to a great deal of pitches from startups and entrepreneurs like you per day. If you've managed to get a call or meeting, make sure you're making the most of the opportunity and selling what it is that makes your business, vision, and you unique. Whether it's your strategy to acquire new users, your marketing plan or your team and processes, answer VC questions with information as to how you're unique and how you are providing something of value to your target audience and customer.
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