6 Questions entrepreneurs need to be prepared for when attracting investors

Photo courtesy of Jared Cherup on Flickr

Photo courtesy of Jared Cherup on Flickr

Rob Swytun, Pristine Advisers

Preparation is important for pretty much everything. The more you can ready yourself for something, the better your chances of succeeding at it, regardless of what ‘it’ is. With that in mind, we take a look at the six questions from investors that every entrepreneur should be prepared to answer as they’re raising capital.

These come from co-founder and CEO of about.me Tony Conrad in response to a question posed by Shashi Raj in Texas on the Entrepreneur.com site.

Conrad says investors tend to focus on six basic areas of your business, including your:

  • team;
  • market;
  • product or service;
  • outreach efforts;
  • business model, and
  • capitalization plan.

These are the six questions entrepreneurs should be prepared to answer:

Who is your team?

More than answering the question of who is on your team, you should answer the question why are they on your team. Investors want to know what makes you and the people you’ve gathered uniquely qualified to tackle the problem you’ve set out to solve. Be sure to mention if you are working with advisors or if angel investors have expressed interest in getting involved.

What is the market opportunity?

Uniqueness is what investors want to hear about when they ask this question. They want to know how your business is unique from all the others within that market. Conrad suggests using the market or customers from which you will extract direct value from to describe the true size of the market you plan on entering.

What is your product and what does it do?

A fairly straightforward question, but when answering it, you should explain not only how your product or service solves a given problem, but how it solves that problem differently from any other product or service on the market and why people will care about this difference and make your product or service competitive.

What is your marketing and distribution plans?

It’s not enough just to have a great product or service. You have to let people know it exists and get it into their hands. If you have any early results to share, that’s a bonus. Also, be prepared for at least some investors to ask what the per-customer-acquisition cost is.

What is your business model and how do you plan to make money?

To answer this question, know the structure of the market you’re getting into and how your strategy fits into this structure. Also, explain how you will handle any potential roadblocks like legal or regulatory issues.

How much capital do you need to raise?

As an addendum to this question, you can also include: How will you use the capital you are raising? and What do you expect to achieve with the funds?

Conrad says he’s not a fan of most of these common questions, although he does concede they help with garnering valuable information for investors. What he wants to know as an investor, though, is what is driving you to see your idea come to life and does your idea capture people’s imagination. Knowing these things helps investors really determine if you have the motivation to build a great company or if your idea is grand enough to inspire people and create a movement.

Try to work your motivation into your presentation when describing your team and tell a story about how your product or service will impact people’s lives before you demo it. If you can do this effectively, Conrad says, you’ve got a solid shot at attracting the investors you want.

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