Questions VCs Will Ask You! | Positioning Your Startup is Vital, How To Do It? | VC Remote Jobs and More
Questions VCs Will Ask You! | Positioning Your Startup is Vital, How To Do It? | VC Remote Jobs and More
Questions VCs Will Ask You | Positioning Your Startup is Vital, How To Do It? | VC Remote Jobs
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📢 Questions VCs Will Ask You!
Last week, I spoke with one of the investors and asked what kind of questions investors generally have during the first meeting with a founder.
He shared his thoughts and some of the most important questions that every investor looks for from the founder!
Source: Google Images
Even if you are a VC enthusiast, this will help you understand the investor’s mindset during the call with the founder.
Team
Most investors will tell you that a great team is the most important part of a startup’s success. Of course, it’s much easier to assess a team if you’ve worked with them before, and that’s why investors and entrepreneurs often work on multiple startups together.
If an investor hasn’t met a team before, here are some of the questions he or she might ask to get a sense of how the team came together, their motivations for starting a company, and what they are good at.
Who’s working on this company right now? How large is the team?
How did the founding team come together? Who else have you hired?
Why are you working on this problem (motivation)? What makes you uniquely suited to solve this problem (unfair advantage)?
Are there any key gaps on the team you’d like to fill?
Who are the other investors and advisors you’re working with?
Just like a normal interview, these questions only add a tiny bit of colour to what you would find on someone’s LinkedIn, so realistically, a lot of the “team” assessment comes through their approach to answering questions, their thought processes, and reference calls with former colleagues.
For example, some of the key things investors are looking for that probably won’t get asked directly include:
Is this someone I can trust?
Is this someone I could see myself working for?
Can this person tell a compelling story and define a compelling vision that will allow them to hire the right team and raise follow-on funding rounds?
Does the leadership team spike on product, engineering, sales, marketing, hiring, or something else?
Where are this team’s weaknesses, and do they recognize them?
How passionate and convicted is the team about this idea? Do they think there is the potential to build a multi-billion dollar company?
Product
Some investors are really good at the product, and some investors are not very good. Either way, they will have lots of opinions on your product 😄.
The main thing investors are trying to understand with regards to product is “is this something that someone will (1) seek out and (2) pay for?” Depending on an investor’s familiarity with your customer profile, product, and market, they will ask more detailed questions, but here are the basic ones that you should have crisp, clear answers to:
What is the product, who is it for, and what problem are you solving for them?
How did you start building this product and working on this problem?
What did your customers do before they started using your product?
Does it “work”? Do your customers like it?
— > If you are trying to help companies make more money, do you increase revenue? If you are helping companies save money and streamline work, do you decrease costs? If you are building an engaging consumer platform, do people spend a lot of time on your platform?
— > This is probably an area where you will get into more depth in follow-up meetings, but try to give new investors a tweet-sized takeaway on the impact you are making on your customers, so they can remember and explain it to the rest of their team
In addition to having a good product (or promising signs that your product could be good), investors want to know if you got lucky or if you have the knowledge, skills, and team to continue making this product better and better. To understand how you think about the product, they will ask open-ended questions like:
What are some of the unique or surprising things you’ve learned about this market?
What does the product roadmap for the next 6–12 months look like?
How are you prioritizing new features?
What is the customer feedback on the current product?
Market
Investors are obsessed with TAM (total addressable market) these days. They want to invest in companies that can grow, and an important part of that is having a big market (where you can steal share from competitors), a rapidly growing market (where you can acquire new customers), or ideally, both.
Historically, $1B has been a magic number for a market to be “big enough,” but these days that is creeping up to $3–5B as investors raise bigger and bigger funds that require them to get bigger and bigger returns. Most of these questions are different ways to triangulate the size of the market and understand why the market needs a new product.
How big is the market?
Why is now the right time for a new product in this market?
Why hasn’t someone done this before? If someone has, why didn’t it work?
Who are the other competitors in this market, and how large are they?
Who is your closest competitor? What are they doing right or wrong?
Go to Market
“Builders” (i.e., most entrepreneurs) often overemphasize the importance of product and underinvest in their go-to-market plan (i.e., how to tell customers you exist and get them to buy your product). So this is a great area to test how you are really thinking about building a business, and not just a great product.
The key thing investors are trying to understand here is “How predictable is your go-to-market process?” There is not much predictability in the sales process for a seed-stage company, and there is a lot of predictability in the sales process for a public company. Investors use these questions to probe how far along you are in that journey, and how “sophisticated” your go-to-market process is relative to the typical company at your stage.
Who is your ideal customer? Who is the end user, and who is the buyer of your product?
How do you find customers today? How do you acquire new leads?
What is the typical buying process for your product? What’s the “happy path” for someone to hear about the product, get more information, and become a customer?
How long was the sales cycle for your existing customers?
Why do you lose new deals? Who do you lose to?
Why do existing customers churn?
Depending on the type of business, we will have a different set of questions for GTM, but these are some of the key questions that we might ask for an enterprise software company:
How is the sales and marketing team structured?
How do you acquire and process leads?
What are the unique advantages you have to acquire new customers (e.g., open source community, key partnership, etc)?
What is the current sales pipeline? How does that compare to your forecast?
What is the conversion rate from leads to closed won deals?
Business Model and Unit Economics
It’s possible for a company to have a great product, a great go-to-market model, and bad unit economics. For example, Reddit is an incredibly addictive product with an incredibly engaged user base, but it only generates ~$0.30 of revenue per user, compared to $28 per user for Facebook.
For very early-stage companies, there probably isn’t too much data here yet, but these are some of the discussions that reveal how you think about where your business is today and what it could or should look like in the future.
Having a very firm grasp of the strategies, tactics, and numbers that drive unit economics shows that you are able to zoom out from the day-to-day work and think about the long-term plan for the business.
How much do customers pay for your product? How do you set pricing?
What are your margins? How much does it cost to serve your customers?
What is your sales and marketing model, and how much does it cost to acquire new customers and retain existing customers?
How do you think these metrics will change as you continue to grow and scale up?
Are there other companies in your industry/sector? How do your unit economics compare to your competitors?
Traction and Trajectory
Most early-stage companies have a lot of opportunities — and a lot of problems! Investors aren’t looking for the perfect story when it comes to traction (because it doesn’t exist). Instead, we are looking for multiple data points that help us connect the dots and imagine what the trajectory for your company could look like.
Ideally, we get to know you over multiple interactions over a longer period of time to build a relationship and track how the company is doing (it’s always great to let investors know that you set a goal, beat it, set another one, and beat it again). But if we are just getting one point-in-time view of the company, here are some of the questions we’d explore:
Where are you in the company-building journey? Product, customers, revenue?
What are the key metrics that you track as a measure of success? How have those metrics been trending over the last few weeks/months/quarters/years?
How are you forecasting growth for the next 12–24 months? What are your key assumptions, and how did you come up with them?
What were your growth assumptions 12 months ago, and how did you do relative to that plan?
How could you grow faster?
Obviously, the key metrics will be very different for SaaS vs. marketplaces vs. consumer vs. hardware. Here’s a sample of what we would ask an enterprise SaaS company:
What is your ARR?
How many customers do you have, and who are they?
How much does your average customer pay you?
What is your net retention/churn? What is your gross retention/churn?
Fundraising
There are a couple of signals that investors look for when they ask you about the fundraiser itself. Overall, they are asking themselves if they give you some money today, will they get a lot of money back in the future? For that reason, the main thing they want to understand is how much you’ve spent to get to where you are today and where you can get to tomorrow with more money.
One of the other “signals” that you send when you talk about fundraising is whether or not other investors are excited about investing in your company. We all wish investors just made independent decisions, but we know that doesn’t always happen, so having strong indicators that other (good) investors want to invest in your company is always a good sign.
Here are some of the questions you might get asked to understand your funding history and plans going forward:
Who are the existing investors, and how much money have you raised so far?
What are you looking to raise now, and what milestones are you hoping to achieve with this financing round?
How are you planning to use the proceeds from this round?
How much cash do you currently have, and what’s your burn rate?
How are you planning to structure this round, and who else is investing in this round?
Miscellaneous
There are a bunch of things investors ask that are sort of like “fit” or behavioural questions in a normal interview where the important part of the answer is just seeing how you process and answer the question.
Here are some questions you might read on Business Insider or Quora where people share their “the one question that landed me $100M,” “my WORST VC meeting,” or whatever, But -
“This will never work!” (or some variant of “your idea sucks”) — If someone is being a jerk, forget about it and move on. On the other hand, if a trusted friend is telling you why your idea sucks, take some time to reflect on their reasoning, so you don’t waste a lot of time on a bad idea
“Have you thought about doing [xyz thing]?” — Investors love to come up with “great” ideas and patterns that match things they have seen in the past. Most of the time, whatever they suggest doesn’t make sense, but the important part is to walk them through how you evaluated the idea
“What keeps you up at night?” — Investors want to know what you think are the biggest risks to (1) judge if those risks are acceptable to them, and (2) see if you are seeing the same risks as them
What is your exit plan? — If you’re pitching a VC, do not tell them how you plan to sell the company after 2 years for $100M. That is great for you, but it doesn’t help the VC generate a good return for their investors.
What happens if everything goes according to plan over the next five years? — A pitch shouldn’t be an interrogation. It should be a two-way dialogue on what the future looks like for your company. Investors ultimately invest in you and your vision, so they want to be aligned on what it looks like if everything goes right!
Hopefully, this helps to demystify the VC diligence process and what to expect in a first meeting with a VC!
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Featured Article:
Positioning Your Startup is Vital — Here’s How to Nail It
Recently I came across an article on “Positioning your startup is vital” by the first round where Arielle Jackson shared her thoughts on how her marketing and communication plan for startup Cover led to quick acquisition by Twitter.
It’s one of the goldmine articles that include more practical approaches to positioning startups. So I am sharing some of the key points that every founder should remember while building a startup.
Source: Goolge Images
Positioning, at its core, is the bedrock upon which successful products and services are built.
It involves crafting a statement that precisely defines the problem your product solves and why your solution is not just beneficial, but also unique and compelling. This statement, although internal, holds immense power. It acts as a guiding light, aligning teams, steering product development, and shaping how your value is communicated to the world.
The key to a potent positioning statement lies in its structure:
"For (target customer) Who (statement of need or opportunity), (Product name) is a (product category) That (statement of key benefit). Unlike (competing alternative) (Product name)(statement of primary differentiation)."
This format forces you to dive deep into understanding your product, your ideal customers, and what sets you apart from competitors.
Crafting a strong positioning statement - requires a profound understanding of your product's unique features and benefits. It's not merely about catchy phrases; it's about distilling the essence of your offering into clear, plain language. It starts with understanding your product's distinctive features and how they address the specific needs of your target audience:
- Who are your customers?
- What challenges are they facing?
- How does your product uniquely solve these challenges?
These are the questions that need precise answers.
Crucially, positioning isn't confined to marketing departments. It permeates every aspect of your business. From product development to branding and marketing strategies, the positioning statement serves as a guiding principle. It's not just about what you say; it's about how you think.
Moreover, a well-defined positioning statement can significantly impact your interactions with potential investors. When seeking funding, a clear and compelling positioning statement can impress upon investors the uniqueness and potential of your idea. It showcases the clarity of your vision and the understanding of your market.
It's essential to develop your product and positioning simultaneously.
They are intertwined; each informs and refines the other. As you understand your product better, your positioning statement evolves, and vice versa.
Competitor analysis is a cornerstone of effective positioning. Understanding how your competitors operate and highlighting your distinctions through meaningful comparisons can make your product more relatable to your audience. It's about finding that unique angle that makes you stand out in a crowded market.
However, the language you use in your positioning statement is crucial. It needs to resonate with your specific audience. While having one dominant positioning statement is vital, you might need to tweak it to appeal to different demographics. Your core message remains consistent, but the nuances can change.
If you find it challenging to articulate a compelling positioning statement, it might indicate deeper issues with your product.A truly valuable product should naturally lend itself to a clear, distinct positioning statement. If you're struggling, it's a sign that you need to revisit your understanding of your product and audience.
In essence, positioning isn't just a task to check off your list. It's a continuous process of refining your understanding of your product and your customers. It's about honing your message until it becomes a powerful force that guides every decision your company makes. Clarity of thought, expressed through your positioning statement, is the foundation upon which successful businesses are built.
If you want to read the full article - here is the link.
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