- December 12, 2021
- Posted by: Robert Brown
- Category: Investing
Getting your startup funded is not a small challenge. It’s even harder when your startup is at an early stage when there is no “field” proof that could indicate the chances of its success, like a working product, happy customers, steady income etc. in the early stage of a startup, founders need to prove investors that the company doesn’t only have a great product with a clear market fit, but they need to show as well they are capable of leading the company through the next stages and ultimately to success. As a preparation for the meetings with potential investors, it is not sufficient to only master the business plan and intimately understand the business model, but to also work hard and prepare for the conversation itself with the investors. What does it mean? First, you need to know and understand the potential questions that investors could ask, and be prepared to answer them thoroughly, to the point and impressively. Those will include personal questions on your resume, as well as technology, business and financing questions. Most likely it would be around 20 questions; here are some examples:
1. How complicated is your technology? How is it protected? Is it easy to copy it?
Especially in a technology venture, protection from theft and copy is very important and provides security with investors, who can ensure that this is significant technological innovation. In case the specified product requires heavy quality assurance tests, software validations, licensing authorization or regulatory approvals, it is recommended to start those at the very early stage of the project, since it is likely they will require time due their nature. Any kind of such an approval will increase the value and prestige of the company to the investors.
2. How many months are required for each stage of the development process?
Some of the ideas and projects have a short window of opportunity for market penetration. In such cases, in it important to show the startup can complete the development stages in a rather short amount of time (months), without contradicting that though the development is fairly quick, it will still be relatively difficult to copy the product.
3. Who are the competitors?
When the need/market size for a certain product exists, chances are there are already a few companies trying to fulfill it. Therefore, it is important to show that there is actuall competition out there, and do not try to avoid or hide this subject.
Show your advantages and unique value proposition compared to your competitors. Don’t claim your product is perfect – it is highly unlikely.
It is important to show the founders know how to take advantage of their product or service unique values over the competitor’s one, and take it to the right market – the market where the value of the product is higher and the disadvantages are less noticeable.
4. What is the addressable market size (AMS)? How did you reach those numbers?
Established researchers from leading companies such as IDC, Gartner etc. costs thousands of dollars. Usually, a new startup does not have the resources to invest in such market research.
It is recommended to invest a good amount of hours on search engines to find other researches, presentation slides, and other data that will help calculate the relevant market size for your startup. Even if the information you dug up does not match precisely to your target market, you can roughly evaluate your addressable market size.
There are many more questions, such: how do you plan to penetrate the market? What is the business model? What is the basis for it? What is the business model of your competition? How much cash do you need until operation balance? What are the ownership rates you are willing to give for the investment? And more.
Knowing these questions and being prepared for them significantly improves the impact you might leave on the investors and their ability to properly evaluate the chances of the founders to lead the company towards success.
Additionally, most founders come from a technological background (engineers, developers) and lack the business and financial understanding needed to build and scale a company. Terms such as operating profit, cash flow, fixed and variable costs, equity, and many more and rarely known and will make it hard to lead and steer the discussion in front of the investors. Such a thing could harm the investors’ enthusiasm and willingness to invest – even if the product is great, with no competition and a great market. After all, even the greatest ideas could fail without the proper business, marketing and strategic leadership.