Did you know that venture capitalism spent nearly $70 billion on startups in 2016? The numbers still aren’t out for 2017, but it’s expected that they only grew. If you want a chunk of this cash, you need to be prepared for whatever questions venture capitalists might throw at you.
The best way to prepare for an interview is to practice. That’s why we’ve outlined 20 questions venture capitalists ask and how to answer them. Let’s get started!
First, investors want to know how well you understand your buyer persona. Be sure to do your research on the type of people who buy your product.
Not only is it more impressive to an investor, but it’s also incredibly helpful when creating new business plans.
A big concern many venture capitalists have is putting money into a company that’s not stable.
Patents and intellectual property are two ways to improve the credibility of your business and entice an investor.
This question helps investors know where they’re going to sit in the company. They like feeling in control of their investments. Competing with lots of other shareholders might discourage them from choosing your company.
However, a good business idea is a good business idea. Don’t be afraid to tell them the truth. For some, the idea of having a lot of other investors may lend credibility to your company.
It’s obvious why venture capitalists always ask this question. They want to know where their money is going. Just like you, they’ve worked hard to make their money and don’t want to see it going to waste.
Make sure you have a good plan in place for what the funds will be used for. Include how you will be able to get a return on the amount that gets invested.
A key component of a successful businessman is thinking ahead.
Show the venture capitalist your future plans by explaining how you will expand your current market.
Not only is the venture capitalist interviewing the company, but they’re also interviewing you. They want to know that you are someone that is humble and aware of your flaws.
Be honest, and you’ll be able to pass this question.
This question lets the investor know how you are spending your money. A small business with a lot of employees will not be as efficient.
This question tests to see how well you understand the market.
The worst answer you can give is we don’t have any competitors. That answer shows that you are not realistic or just not aware of what’s going on outside of your business.
This question will typically follow the one before it.
Tell the venture capitalist what it is that makes your product better than your competitors. This will help them to better see your vision as well.
Along with this question, the investor might also ask what is the lifetime value of a customer. If it costs $100 to acquire a customer but they’re only going spend $75 on your products, that won’t look good.
Be sure to have these numbers refined and ready to go.
If you end up getting the investment, the venture capitalist is going to want to know how it will affect your digital marketing strategy.
Be sure to include how you will utilize social media, public relations, and more in your plan.
No business is without risks. However, being unaware of the risks is very dangerous for investors.
Just because your business might have legal risks, doesn’t mean it’s the end of the world, but the venture capitalist needs to know. Don’t sugar coat anything and learn how to draft contracts.
This is a simple one. However, be sure to have the data to back up whatever you say.
You can count on this being one of the questions venture capitalists ask. They need to know if a business is in a lot of debt and why.
This is one of the most common questions venture capitalists ask, so be prepared for it.
What is the main thing stopping your business from making a million dollars? Is it public awareness, production problems, or other issues?
Knowing what’s limiting your business will help a venture capitalist know how to help it.
Share your plans for growth. Help them to see your vision and the places you want to go.
Like question 15, this one helps the venture capitalist learn more about the product and how to improve it.
$190 billion is spent on advertising every year. Share what’s working in your plan and what’s not. Help them to see how you’ve learned more about the market.
Failures are not always bad when they help you to learn. Don’t be afraid to talk about your failures in advertising as well.
With this question, you’ll want to explain how customers typically find out about the company and product. Then share how you move them along in the cycle.
Not all businesses make it Amazon or Apple level. Talk with the venture capitalist about your plans. Let them know if you are willing to sell the company.
Preparing for these common questions venture capitalists ask will give you a better chance to secure the funding. However, there are other ways to find funding for your startup.
For the best tips on building a successful startup, talk with me! I love helping businesses grow to their full potential.
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