There’s lots of advice about what make a great pitch deck for a startup founder meeting potential investors. However, to me they are simply the obvious things, what about the killer, more subtle questions, the ones that could make you stumble or your less confident of your response? Also, flip that thought, what can you do to make your conversation different and create a striking first impression?
While it’s impossible to control an investor meeting’s outcome, thoughtful preparation gives you the best shot at making your conversation impactful and memorable. Smart people ask smart questions, so be prepared as your fundraising meetings will be a significant learning curve, as each will be different.
Sometimes tough question appear innocuous, others get your heart pumping, mouth dry and speech 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 knowledgeable, confident and trustworthy you are. They are investing it you, after all.
It’s simply not possible to learn a scripted presentation, 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, assume the pitch meeting is not going to be a breeze, and then, in the heat of the moment, give yourself the opportunity for a thoughtful response or to grab the agenda of the conversation.
So let me share you some of the killer questions in fundraising conversations which have made me think over the years, and suggestions on a response.
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. 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 good chance of success, so convincing you’re the right person to invest in will be the challenge you face. 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?
It’s a difficult question, because what are you going to say? You can’t sit there and bluff that Google are 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 Google decide to do it you are toast. With investors, there is a scale between fear and greed, and they’re looking to see where you are on this spectrum – 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 respond that 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. Google 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. What’s your Blue Ocean? When pitching, many entrepreneurs focus on the size of the ‘total addressable market’ and the market share they believe they can capture. That may seem sensible, but talking about the total market is invariably too broad to be useful.
Nearly every market is a frenzy of Red Ocean, so it’s not just about communicating the size of your market, you have to show investors where the Blue Ocean is, and that you have found an entry point that others haven’t. In doing this, your articulate your value proposition early in the discussion, and investors are going to listen to you closely.
Another thing to consider is how much of an advantage existing market share provide for incumbents in that market. For example, Hilton’s lead in the hotel industry’s over Airbnb in terms of assets was not much of an advantage, because Airbnb was built on an asset-light marketplace model.
So, tailor your pitch specifically to the segment of the market where you can most immediately get a foothold, gain traction, and build a sustainable customer base.
4. How do you stack up against X, the market leader? 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 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 lazy and arrogant response. 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 sustainable traction.
5. Unpack your technology As the Fourth Industrial Revolution accelerates, how can we predict which future technologies will become a reality, and have a real impact on our lives? A founder who can unpack their tech innovation in clearly understandable language with clarity, common sense, logic and avoid hype, will gain respect from an investor.
There are three key factors you need to provide insight on:
· The context in which your new technology emerges
· The viability of the technology innovation
· The barriers to the technology’s success
Where incumbents dominate a market with their marketing or distribution power, a new technology has to be extremely good or desirable if it is to displace them. In some instances – such as Amazon in retail, Uber in the taxi sector – the failure of incumbents to harness new technologies has allowed startups to disrupt them. Walk the investor through the customer journey, where your new tech creates value, and what you need to do to make it happen.
6. Discuss the barriers to sales growth There are many common barriers to the adoption of new technology, which are a hindrance to growth. For example, privacy and trust regarding data. A second common hurdle is inertia, customers need a certain level of service, convenience, and price compression before widespread adoption of new technology happens.
Gartner’s hype cycle, in which new technologies generally navigate a long ‘trough of disillusionment’ after early adoption before widespread consumer adoption, invokes this phenomenon – more specifically, the vested interests of competitors in owning their relationship with their customers
For enterprise startups in particular, you have to know not only what a customer wants to buy, but also what the appropriate pricing strategy is and how your product integrates with others, if needed. Identify the tipping point. The holy grail of tech innovation is predicting the likelihood and timing of the tipping point between a technology remaining an optional product for most consumers and it becoming a must-have.
Startup founders willing to go through the R&D process are likely to spot trends and navigate the sales journey, taking the best course of action at the right time. This is what investors will buy into.
7. Automate Your Demo Investor meetings are an opportunity to showcase you tech product, but also leave you open to epic tech failures that can trigger doubt in the minds of funders. Try to minimise the risk by automating your demo.
Resist the temptation to give an impromptu demo on request. Rather than trying to navigate an embryonic product in an uncertain environment, either build a clickable prototype, make a product video with a good narrative voice over, or show sharp wireframes of the concept, developing a series of screenshots of the user journey and experience.
Automating the demo also prevents you from wandering off to show bells and whistles that may not be critical. Prepare a use case in advance so you know exactly what you want to show – a scenario that involves a target customer should be enough to properly preview the model, so choose the most relevant and effective one.
8. 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. You only launch once – a moment in time where the technology and customer demand align to create the conditions for a startup to flourish.
You need to make a strong case for the timing of your startup as often, investors will have heard of something similar to your idea before. Pitching the timing as much as the idea can help them decide to invest, even if they passed on a similar idea before. Why now?? is one of the most important questions for the entrepreneur to have a good answer to.
Investors are looking for markets where there has been a recent inflection point, which can be driven by a shift in consumer behaviour, a regulatory change – or your new tech innovation. What’s the market opportunity and why now? What is the economic impetus for this product today? What is the tech catalyst that you’re introducing, enabling the new product experience?
When investors aim 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 of the first thing that comes into your head.
The critical thing is connecting your conversation in a calm, confident and assured manner. People listen when they’re engaged. It’s about the nuts and bolts of your delivery, making your content credible and informative, and not trying to be the smartest person in the room.
The anatomy of being memorable in an investor pitch means 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’. Give yourself the best opportunity by considering the above approach, and most of all, be well prepared.