How to Prepare for Investor Questions
You’ve done the work; you’ve researched, you’ve developed your product or idea and now you’ve decided it’s time to start raising capital. You’ve probably heard people say that it’s tough out there, but don’t let that dissuade you, because there is money out there.
And if you’re tenacious enough to go out and get it, I say we stack the deck in your favor. I’ve been out there; it’s tough but it’s not impossible. Since I’ve gone through this process, I know what it’s like and what types of questions you’ll be asked by venture capitalists and angel investors when you’re pitching.
The typical scenario is that you’ve already pitched to them, they’ve seen your deck, they know your story and now it’s their turn to ask some questions. At the end of your pitch, there’s typically around half an hour of questions that you will need to be prepared for. Some questions will stump you. It happens to all of us at one time or another. It’s okay, but we can use this to prepare ourselves for the next time. Which is why my first prep tip is:
Ask if you can record your pitches.
Start a voice note on your phone and ask your investors, “I’m working on this and I’m trying to get better. I would love it if I could record this on a voice memo, would you be ok with that?” Personally, I’ve never had anyone say no. When you get home, review those recordings, track the questions you were asked and write down the answers. Soon, you’ll have a notebook full of potential questions and well-planned answers to study.
Prepare for investors to find weaknesses.
Recording these question sessions and compiling them in your notebook will also help you ensure your pitch is absolutely airtight. Investors will poke holes. That’s their job. They need to make sure that whatever it is they’re putting their money into is going to be a smart decision. So if they look at your pitch and start feeling like you don’t know your stuff, or your financials aren’t together, or your story is off, they’re going to get nervous and step back. This is not an environment in which you want to make a careless mistake, so get your pitch locked down tight.
Tighten up your slide deck
While Kevin O’Leary says your slide deck shouldn’t be more than 12 slides, I say 15, especially if you have some intricacies in your product. This is especially true in highly technical or scientific applications. If your product needs more explaining, you should explain it so it's understood, but keep it short. I like to have my only pro forma slide as the last slide, which we’ll get into next.
Make sure you really understand your forecast
A pro forma shows everything from your forecast in one graphic. To put this together means you’re going to have your forecast, and if you don’t have your forecast then you shouldn’t be pitching yet because what are they investing in? Yes, you might have this fantastic idea that could make tons and tons of money, but investors want to see how much, by when, and how you’re going to accomplish it. They want to see that you’ve thought this through.
To create your forecast, get really detailed on what you’re going to do first. What does year one look like? Where will you start? Are you going to launch locally or regionally? Will you spend on advertising or digital marketing? Next, move on to year two and how you’ll have expanded and plans to continue expanding. Are you adding sales reps? Are you expanding your territory? Is your revenue forecasted to take a big jump because of something you’ll be doing? Explain why.
These investors want to know the numbers and the data, not just a vague idea that you’ll launch and see what happens. For a more in-depth example on this, head to this episode over on the UPersevere Podcast wherever you get your podcasts.
Put a script together
Once you’ve put together your forecast, put together a script on how you’ll answer some of the most common questions you’re going to get:
What’s the story on your jump in revenue?
Why did you go from $1 million to $50 million from year one to year three?
How are you going to get there? Is it going to be digital? Sales reps? B2B sales, service model?
Make sure you have these answers practiced and ready to go so you’re comfortable and confident when it’s time to answer.
Most of all, be comfortable and know that you can do this! Keep on persevering.