These are investor questions that you might encounter concerning Intellectual Property. Therefore, you should prepare for them adequately
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When an investor chooses to invest their resources in your business, ultimately it’s not charity. They invest their hard-earned resources and capital with a goal in mind. The investor will only pump money into a business if they know that they will reap profit from the venture.
It’s very important for a start-up to show value and rate of return to an investor if at all they want to bag funds that will help them scale up the business. In the following article, we’ll look at the questions that investors will ask you and the things they consider before they consider giving you the resources that you need.
Investor questions concerning the founding team
One of the most fundamental sure-fire components that Venture Capitalists look at is the team that is leading the business. Are they motivated enough to keep pushing and do they have an undeniable passion for the business? What inspires them to do what they do?
According to authors Richard D. Harroch and Larry Kane, investors consider the team behind the product more important than the product itself. The potential investors take a keen interest in the experience of the team, the CEO’s competence and their ability to listen.
Therefore, when you are mooting your idea to an investor for your business, here are factors that you should cover in your presentation:
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What is the detailed structure of leadership and the team? What role do each play and their competencies?
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What additions do you need to the team?
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How many employees does the company have currently?
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What is so unique about them that they will drive and execute the vision successfully?
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In a year’s time, how will you scale the team?
The VC is interested in knowing whether the team that they will be working with is enjoyable. Therefore, you should consider engaging consultants and experienced advisors if your team is still young and is at its early stages.
Questions about your product from potential investors
What product are you selling to the market? Does it have a sizeable niche? How unique is the product and how will the product disrupt the industry?
One of the most important questions you need to answer is one that concerns intellectual property rights (IP). Do you have the rights/license to the product you’re selling or will you be paying patent fees? What legal implications could arise in case you violate those rights?
Gregor Pannike, a lawyer and the Managing Director of Agema Analysts, a company that gives startups legal support and advisory services believes IP issues are at the core of a startup’s business model. “For many startups, particularly for those active in the technology sector, their intellectual property such as know-how, software, innovative processes, etc is at the core of their business model and value proposition. This is often combined with a cleverly-designed logo respectively trademark building the base of their growing brand equity.”
In simpler terms, if you are introducing a new product into the market, you need to register it with the relevant authorities that deal with intellectual property.
These are investor questions that you might encounter concerning Intellectual Property. Therefore, you should prepare for them adequately:
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What legal risks do you see?
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What is unique about your company?
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What intellectual property do you own?
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Who developed any intellectual property you own?
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What big problem does it solve?
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Have any employees or partners who left who may challenge these rights?
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Are there any additional patents pending or planned?
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How are any current intellectual assets owned?
The market
The market that a startup is targeting is a crucial component that the investors will look at with a laser type of focus. A business has to prove that there is indeed a market for the product/service that they are offering. Ensure that you show that if the market embraces the product well according to your projections then it will go big.
Investors don’t want small returns therefore if the first product is small, show how your company will scale that product as the foundation for other irresistible products.
Other questions concerning the market that might come up are:
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Who exactly is your best customer?
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What percentage of the market share do you hope to get?
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What is your PR strategy?
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What is your marketing strategy?
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How long will this take?
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How big is the market opportunity?
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Why is this the right time for this product or service?
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Who do you most aspire to be like?
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Who do you least want to be like?
What have you achieved so far?
A company that has achieved early traction has better chances of securing venture financing than one which has not lifted off the ground yet. What does traction look like? According to a study, 20% of small businesses fail within the first year. Does your company have a long-term plan in order to thrive in the upcoming years?
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A successful pilot testing of the product
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Real verifiable customers especially known brand name customers
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Admission into incubator programs or technology accelerators for business such as E4Impact Accelerator, Pangea Accelerator and others
Strategic partnerships
These are some of the investor questions that you will contend with therefore prepare adequately. How can you accelerate early traction? What has given your company the success for early traction? How will your startup scale the early traction?
Another good way to show the notoriety you have gained is by highlighting the news media that have talked about you. For example, in your presentation have articles and even news items in which your company was the subject especially if they are prominent, known and well-respected news outlets. So don’t ignore that journalist who has been chasing to interview you for a long time.
Utilization of funds
The investors will 100 per cent want to know how you’re going to spend the money that they give you. A startup has various costs and venture capitalist wants to be sure that they won’t lose their money when they entrust it to your business.
To respond adequately to those investor questions, you should have a clear, elaborate spending plan. They will also be concerned about your burn rate. What is the burn rate?
According to Investopedia, burn rate refers to the rate at which a startup or company is spending its venture capital to finance overhead before they start generating its own revenues. Burn rate is a measure of cash flow.
If a company spends $200,000 per month, it is said to have a burn rate of $200,000.
Have a look at the following questions:
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How much money will you spend before breaking even and generating revenue for your business?
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How much will be spent on founders’ salaries and new team members when you increase the team?
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How will the capital be allocated?
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What happens when you miss raising your target funds?
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Justify the amount you’re asking for.
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How much will be spent on overhead and how much will go to expansion and scaling?
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How much are your personal expenses per month?
Justify the amount you’re asking for.
Investor queries about the competition
Experts agree that if investors ask an entrepreneur about their competition and they respond by saying they have no competition, it raises questions about their credibility. Investors will always want to know how you will deal with your competitors and stay ahead of the pack. Therefore, they will ask you questions such as:
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How does your product compare in terms of price, performance and features with the competition?
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What gives your company a competitive edge?
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Who are your competitors?
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What edge do your competitors have over you?
Conclusion
Preparing for fundraising is a painstaking process. You need to take your time and research thoroughly before you go out looking for competitors. Take notes from fundraising gurus such as Peter Thiel. Invest time in putting together business plans, strategic plans, financial statements, future plans, research into the industry and so much more.
Most importantly be realistic about your valuation.
