February 19, 2014 Category: Investments
Having been involved in numerous personal entrepreneurial activities and transactions, I have observed a certain level of consistency in how investors respond to investment pitches.
Too often entrepreneurs fail to place themselves in an investor’s shoes and can’t answer fundamental questions. Below is a compilation of my investor’s top ten list of questions that any entrepreneur asking for money better be able to answer (on top of the thousand or more other questions that you will likely be asked).
1. Why should I believe you?
a. Credibility is the currency of the entrepreneur. Without credibility nothing you say means anything. Investments are made as much in people than in things. To be credible you need to be prepared and truthful.
b. Is your information complete and well conceived? Are your projections reasonable? 500% return in 12 months is, on its face, not believable.
2. What do you want? If you don’t ask, you don’t get.
a. Debt? Equity? How much?
b. 25% 50% 75%?
c. Are you prepared to give up management control or at least a very meaningful part of it. (Get real. This WILL happen and be ready for it).
3. How will this make me (not you) money?
a. Investors want to get their money out before you do. It’s a reasonable requirement.
b. Nobody wants to invest in a deal that will just pay the entrepreneur a salary to keep moving sideways.
4. How much do you have invested in this venture?
a. I have seen this question asked in every deal I’ve ever been involved in. If you don’t have any financial stake in the deal, make sure you have a real good answer why.
b. Quitting a job to pursue a dream constitutes a meaningful investment.
5. Have you ever done this before?
a. Have you ever run a business (not built your new widget app)?
b. Like everything else, experience counts.
6. Who else is involved that I need to meet?
a. Who are the key people? Can they be trusted?
b. Do you have to rely on a crazy genius who lives in the basement?
7. What are your professional relationships?
a. Do you have qualified counsel?
b. Do you have a good CPA?
8. Will you be properly capitalized? So long as you’re asking for money, make sure you ask for enough.
9. Who are your competitors? “There aren’t any” is a bad answer even if there aren’t any.
10. Are you adaptable? The world changes and you better be able to change with it.