One of the lasting insights I’ve learned helping startup founders is you need to anticipate the hardest questions you could be asked by a potential investor, before going into a fund raising round.
There’s lots of advice about what make a great pitch deck, what startup customer metrics you need to hold in your head, and how you need to explain your cash burn rate and runway. However, they are simply obvious things, what about the killer, more subtle questions, the ones that could make you stumble or your less confident of your response?
While it’s impossible to control a meeting’s outcome, thoughtful preparation gives you the best shot at making your conversation memorable. Smart people ask smart questions, so be prepared, and fundraising is widely known as a significant learning curve for founders.
Sometimes tough question appear innocuous, others get your heart pumping and mouths stuttering. Knowing how to improvise and being able to think on your feet is a skill that includes the ability to give impromptu remarks, as well as to answer unexpected questions well.
Investors ask pointed questions to obtain information, but there are other reasons behind them. What they really want, in many cases, is to get a feel for your attitude towards a certain subject, and how calm, confident, and trustworthy you seem.
The number of potential questions you might be asked is infinite and context-specific such that it’s not possible to learn a scripted response. However, it is possible to hone your improvisation skills by learning methods to give structured answers, no matter what you’re asked.
The best tactic is planning and preparation for the off-beat, alternative question, assume the pitch meeting is not going to be a breeze, and then, in the heat of the moment, you give yourself the opportunity for a thoughtful response, as you literally stop and think.
So the strategy to answering difficult questions has two foundations: possessing knowledge and giving information, and delivering your response in a poised manner.
Firstly, let’s look at the tricky questions. There are many challenging questions you could be asked while fundraising, here are four which have made me think over the years.
1. Why you?
In essence, an investor is asking What is your Founder-Market-Fit? They want to see you have a compelling and unique insight, and understand what about your thinking is contrarian i.e. why your startup will win.
Founder-market fit is an indicator of a match between the founder and the problem they are going after. What compelled the founder to start the business? Domain insights and experience really matter, investors won’t want to fund accidental founders or pay for you to learn about an industry.
Investors like to back folks who have a proven track record of success, so convincing you’re the right person to lead the team will be the challenge you face. First time founders may have a demonstrable track record as technical experts, but moving to leading the charge from the front is different.
Do you think you’re the best person to lead the company, now and in the long run? – is an emotive and direct on-the-spot question. Are you personally investible?
There will be questions about your judgement and how shrewd you are. For example, if you look back in a year and things haven’t gone as well as expected, what will be the reason? Thinking about why we would fail appears negative, but it’s all about having the foresight to stand back and not be blinded by headstrong thoughts.
2. What if?….
One of the biggest challenges you get pitching is what I call the ‘Godzilla problem’ – for tech, it’s You could do this, but what if Google decides tomorrow they’re going to launch this?
The truth is it’s a difficult question, because what are you going to say? You can’t sit there and bluff that you have a friend who works at Google who said they’re not going to do it. The investor’s response can then be That may be true right now, but they may change their mind once they see it’s working for you.
There’s no response to that, because if they decide to do it you are toast. With all investors, there is a scale they are looking to see where you’re on between fear and greed – because they are on it too, albeit from the other side of the table. They toggle between I’m really excited about this company, we can make money to It’s not for me, this one thing could happen and they’re finished.
Don’t attack fear with why they shouldn’t be fearful. You’re almost telling them that their fear is irrational. The wrong answer is ‘that won’t happen’. The best response is along the lines of You know, that may be right. Facebook may come and do that, but this is such a great opportunity that if they don’t, we are going to be in a great place.
3. How do you stack up against X, how are you going to compete against them?
The context here is that they want to know how you are going to move the needle to a sustainable, 10X advantage. They likely already know who dominates your space, and accept you have potential with your innovation in a ‘David v Goliath play’. What they want to hear is how you think you compare, one-on-one.
First of all, never brush off any competitor as being irrelevant as either too big or complacent, It’s a common, lazy and arrogant position. For many years Microsoft were derided by tech entrepreneurs as a bloated, irrelevant dinosaur – today besides the Office Suite, they own Xbox, the Surface range, LinkedIn, Skype, Azure, Hololens and are leaders in cloud computing.
Recognise every solution, even inferior solutions, as legitimate competitive threats. One approach is to focus the thinking on a particular aspect of problem-solution fit around user experience. Your answer could offer a compelling strategy that neutralises rivals by overcoming or changing key aspects of user behaviour that will give you traction.
4. Why now?
Timing is everything, and really understanding Why now? for your startup is vital. The startup graveyard is full of examples of things too early or too late to market, yet Uber wasn’t the first to think of on-demand rides, and AirBnB wasn’t the first to let people host visitors in their homes.
When investors are asking Why Now? they are focused on understanding the market opportunity, dynamics, and context – the factors that will make a difference between success or failure. In responding, be confident but not strident. Uber was only launched once – a moment in time where the technology and customer demand aligned to create the conditions for a new startup to flourish.
But don’t take it from me, Bill Gross analysed the biggest factor for startups to succeed and timing was the number one factor, ahead of team, funding, execution, idea, and business model.
So having discussed potential awkward questions, let’s turn to the strategy of managing conversations. When someone aims a tough question our way, the box of frogs goes off in our heads, leaping around in mayhem, impacting our ability to think rationally and offer anything other than a jibberish response.
Rather than giving ourselves a few seconds to collect our thoughts, we tend to grab what’s been said and jump on it, fearing that even a bit of silence will be read as hesitation and uncertainty, so we rush in boldly only to firmly stick our feet in our mouths.
The answer you blurt out on impulse is unlikely to be your best response, and you’ll kick yourself later while mulling over the things you wished you had said. A moment of silence, on the other hand, lends you a thoughtful air, rather than stumbling into a rushed set of words that make you sound as if you are sharing the first thing that came into your head – literally.
In addition to embracing the silent pause, there are other techniques that will buy you extra thinking time. One technique is to get a better question from what has been said, here are some tactics to do this.
1. Ask them to repeat the question
Just as you wish you could retract an answer, people frequently wish they could reword their question with greater clarity. Asking them to repeat the question will often mean the second take is shorter and clearer than the first, and this gives you time to think.
2. Ask for clarification
Another tactic is to respond with a question of your own that seeks to clarify what the questioner is trying to get at. Which product are you referring to? What timeframe do you have in mind? When someone has asked a question which has cornered you, asking them to redefine their terms can turn the tables.
3. Clarify or define a point yourself
Another way to take control of an interaction is to define the question as you see it within your response. For example, why was your pitch to Pearl Investors a failure? It sounds emotive and direct, but you can turn this round to If by failure, you mean that nothing good came out of it, then I don’t think it was. We didn’t connect on this round, but we established a relationship and they’re open to future investment.
4. ‘Discuss’ the question.
Sometimes it seems investors are seeking a specific answer to a question, when really they just want to have their question discussed. There really isn’t a single answer to give. They want to hear both sides of an idea, or to know that you’ve been thinking about it too.
So for example, your response to the question how sustainable is your pricing strategy? maybe along the lines of that’s a question we’ve asked ourselves, our thoughts are that we can sustain a 10% differential for at least 12 months – given your experience, what are your thoughts?
The key with these hedging strategies is delivery. Hesitating and acting sheepish will render them wholly ineffective. Demonstrating confidence lends you the air of strength.
Remember, when people ask questions, they’re not just looking for answers; they want to get a sense for what you’re like and how you handle pressure. The art of improvisation requires knowing how to respond in varying circumstances. Of course, sometimes the best way to answer a difficult question is to give a totally straightforward answer. This forthrightness can be refreshing and disarming.
In summary, investors will ask tough questions. In fact, it’s a good way to qualify them to see if they are serious and know what they are doing. You are not expected to have all the answers investors would like to hear, but you are expected to have anticipated some questions and not be dismissive, or worse, make the answers up.
The critical thing is connecting with your audience. People listen when they’re engaged. It’s about the nuts and bolts of your delivery, and not trying to be the smartest person in the room. The anatomy of being memorable has almost nothing to do with your content, it’s all about whether you related to your audience on an emotional level. So it’s important to bust your own biases. Investors are simply asking ‘Make me believe by showing me you know what you’re talking about’.