How To Answer Any Investor Question? (Part 1)

How To Answer Any Investor Question? (Part 1)

Useful tips from PitchBob (Part 1).

Brief outline of this article

We’re here to help train you on how to pitch and improve your answers to tricky VC-style questions — PitchBob’s AI VC Coach.

An Introduction

— From PITCH BOB’s Founder

Pitching your startup is a daunting task, an uphill battle where only the top 1% emerges victorious. However, as an ambitious founder, you’re bound to find yourself in a position where you need to captivate investors with your pitch.

Congratulations on securing an investor meeting and delivering a stellar presentation! Now comes the crucial moment of instilling unwavering confidence in the minds of these potential backers. How do you achieve that? By skillfully and convincingly answering their questions.

Embrace the Power of Questions

Believe it or not, questions are a positive sign. They signify that investors are genuinely intrigued and eager to delve deeper into your business. It’s an opportunity for you to demonstrate your expertise, passion, and unwavering commitment.

Perhaps you’ve been pitching your business for a while and have a sense of the types of questions that may arise. However, for budding founders or newly established enterprises, predicting the exact queries you’ll face during a pitch can feel like an insurmountable challenge.
Fear not! We’ve got you covered. In this comprehensive guide, we offer a treasure trove of insights derived from months of meticulous research and analysis. We have painstakingly identified the questions that are most likely to be posed by investors, and, more importantly, we provide you with the best strategies to tackle them head-on.

Allow us to introduce the driving force behind this exceptional resource: STORY’s esteemed Senior Content Analyst, Louise Saludo. Her expertise and dedication have paved the way for this invaluable compilation.

As you embark on your journey to raise capital, we wish you the very best. Remember, each question is an opportunity to showcase your brilliance and leave a lasting impression on potential investors. With our guide as your compass, you are well-equipped to navigate the complex terrain of investor queries and emerge victorious in your pursuit of funding.

Study Overview

Behind the creation of this invaluable guide lies a rigorous and meticulous methodology that we followed to ensure the utmost accuracy and reliability of the information presented.

Our quest for knowledge began with a thorough online search, scouring the vast expanse of the internet for credible resources that included articles, blog posts, and book excerpts. We left no virtual stone unturned in our pursuit of gathering valuable insights.

To maintain the highest standards of quality, we conducted a comprehensive background check on each author of the selected resources. Our criterion demanded that they be verified startup experts or investors, possessing the knowledge and experience necessary to contribute meaningfully to the subject matter at hand. This stringent process resulted in a refined collection of 15 online resources, comprising contributions from entrepreneurs, consultants, venture capitalists, and reputable startup publications.

By meticulously sifting through this treasure trove of knowledge, we unearthed a staggering total of 706 unique questions. However, to ensure clarity and facilitate analysis, we consolidated these questions, bringing the count down to 390 insightful inquiries.

To better understand the patterns and nuances within the dataset, we diligently categorized and classified the questions according to common startup topics. This categorization process yielded 16 distinct categories, providing a comprehensive framework for our analysis.

In the spirit of transparency, we must clarify that while we strive to eliminate assumptions in our research, in this particular study, we made an exception. We assumed that categories with a higher number of questions naturally held greater significance for investors compared to those with fewer questions. Furthermore, when we encountered recurring questions across multiple resources, we deduced that these queries were more commonly posed by investors.

The sections within this guide are presented in the order of the total number of questions within each category before consolidation. By adhering to this structure, we ensure that founders can explore the guide holistically, equipping themselves with the necessary knowledge to tackle a wide array of inquiries that are likely to arise.
For thoroughness and completeness, we strongly recommend that founders peruse this entire guide. Each section contains essential questions that have been carefully curated to provide comprehensive coverage of the investor landscape.

To provide a glimpse into the wealth of knowledge awaiting you, we have compiled a list of the most frequently encountered questions across all categories, which can be found on the following page. Brace yourself for an enlightening journey ahead.

Top 5 Question Categories

Introducing the Key Pillars of Investor Interest

Team: Igniting the Spark of Success (19% of Questions)

In the world of startups, it’s not just about having a great business model. It’s the visionary founding teams that truly drive success. Investors understand this, which is why they often say, "Bet on the jockey and not on the horse." In our extensive research, the Team category stood out, capturing the most attention with a staggering 133 questions.

Investors are naturally curious about the motivations, skills, experience, educational background, and working relationships of the founding team. They want to ensure that the team has the necessary dynamics and conflict resolution abilities to navigate challenges. Moreover, investors are eager to assess the potential for a fruitful long-term partnership with the founding team, spanning the next five years should they decide to invest.

Competition: Thriving in a Sea of Challenges (8% of Questions)

In the world of business, competition is inevitable, no matter how groundbreaking an idea may be. Interestingly, the Competition category emerged as a significant area of interest, generating 57 thought-provoking questions in our research. Investors know better than to underestimate the power of competition. When a founder claims, "we don’t have any competitors," it raises eyebrows.

Investors want to understand who the key players in the market are and place great emphasis on how the startup positions itself and differentiates from others. They are keen to explore the strategies founders have in mind to overcome competitors and capture market share.

Financials: Unveiling the Numbers (7% of Questions)

Taking fifth place in our study, the Financials category attracted 52 intriguing questions. In a separate study we conducted, we discovered that most investors have a healthy skepticism towards financial projections. The question on their minds is not whether projections are wrong, but rather, "how wrong are they?" Investors dive deep into the assumptions behind financial projections, seeking a comprehensive understanding.

Traction: Building Momentum (10% of Questions)

The Traction category claimed second place with an impressive 73 questions. Investors want to witness the tangible progress a startup has made thus far. They seek evidence of momentum driving the business forward. Traction showcases the team’s ability to achieve results within specific timeframes and resource allocations. Additionally, investors are eager to uncover the strategies founders have in mind to capitalize on the initial success.

Solution: Unveiling the Key to Market Needs (8% of Questions)

Placing third in our list, the Solution category attracted a total of 58 questions. Investors are intensely curious about how a business solves a fundamental problem in the market. They want to know precisely what the company does and how it goes about doing it. These questions offer investors a clear understanding of the unique value proposition and market fit.

By addressing these key areas of investor interest, your startup can captivate potential backers and secure the support needed to propel your vision to new heights.

Unlocking the Art of Answering Trick Questions

In the high-stakes world of investor meetings, founders may encounter tricky questions designed to catch them off-guard. However, armed with knowledge and expertise about your business, you can navigate these questions with ease. Here’s how to handle the top five most common trick questions like a pro:

  • What key roles need to be hired soon?
    When faced with this question, be prepared to discuss the critical roles necessary to drive your business forward. Showcase your understanding of your team’s needs and articulate how these roles align with your growth strategy. Demonstrating foresight and a clear plan for expansion will impress investors.
  • What experience do you have in this industry?
    This question presents an opportunity to highlight your relevant experience and expertise. Share your journey in the industry, showcasing milestones, achievements, and lessons learned. Emphasize how your background uniquely positions you to understand the market dynamics and navigate its challenges successfully.
  • What motivates you?
    Here, investors are seeking insight into your passion and drive. Be authentic and share what inspires you to pursue your business goals. It could be a personal connection to the problem you’re solving or a vision for positive change. Let your genuine enthusiasm shine through to forge a connection with potential investors.
  • Why are you the right person to achieve this?
    To ace this question, clearly communicate your unique qualities and abilities that make you the ideal person to lead your startup. Highlight your track record of success, leadership skills, and adaptability. Convey your determination to overcome obstacles and your ability to rally a team to achieve shared goals.
  • How will investment funds be used?
    Investors want to ensure their capital will be wisely invested. Outline a well-thought-out plan that highlights specific areas where the funds will be allocated, such as product development, marketing, talent acquisition, or expansion into new markets. Be transparent, showing a deep understanding of your financial projections and a strategic allocation of resources.

Tips To Shine Bright:

Be Honest: Establish trust by answering all questions honestly. If a blunt conversation is necessary, don’t shy away from it. Authenticity goes a long way in building strong investor relationships.

Humble Brag: Showcase your traction, experience, and skills confidently. However, strike a balance between demonstrating confidence and avoiding excessive ego, as humility is valued by many investors.

Use Data: Thoroughly research and arm yourself with relevant data to support your answers. A well-informed founder who can back their claims with facts leaves a lasting impression on investors.

Get to the Point: Respect investors’ time by providing concise and focused answers. Avoid rambling and communicate your message directly, ensuring your responses are clear, compelling, and easy to digest.

Mastering the art of answering trick questions will enable you to navigate investor interactions smoothly and confidently. With the right mix of preparation, authenticity, and concise communication, you can leave a lasting impression and secure the funding you need to turn your vision into reality.

#1 Team — 19% of Questions

An investor who chooses to support a founding team should be prepared to work with them for a minimum of five years. Naturally, the Team category received the most inquiries.

Which key roles need to be filled soon?

Individuals rarely drive growth alone. It requires a collective effort, which means hiring new team members. Investors are interested in knowing the existing team’s skills and identifying any gaps. They also expect complete transparency regarding the team’s staffing and hiring strategy when it comes to utilizing funds. Be open and honest about this.

What is your experience in this industry?

Investors want to collaborate with the best of the best. State the number of years of experience, key employers, and any significant accomplishments. If a founder has spent several years working for top companies in the industry, highlight that. If there have been past successful exits, inform the investors. Humble bragging is allowed here.

What motivates you?

Running a business is challenging and often takes years before a startup becomes profitable. Investors want assurance that the founders are driven by a strong motivation to keep the team motivated and resilient during difficult times. Be honest about your driving force.

Who are the founders?

This question is straightforward. Investors who decide to work with a company will closely collaborate with the founders over the next five years. Instil confidence in investors by demonstrating that the founding team possesses the right skills, experience, work ethic, and leadership style. It’s a bonus if founders can mention popular companies they’ve worked with or successful exits. Again, a little humble bragging is acceptable.

Who are the key team members?

While it may not be possible to mention every employee on the team slide, it is important for investors to understand the skill set and experience of each team member. This question also provides an opportunity for investors to gauge the current size and management structure of the team. Get straight to the point when addressing this question.

How confident are you that necessary gaps will be filled when needed?

Human resources are a long-term investment for a startup, and ideally, the hiring process is already in progress. Additionally, investors want leaders who can attract and retain top talent. If it’s true, provide an overview of the current hiring process. Get to the point and be concise.

Do the founders have a good working relationship?

Research shows that 31% of investors value a great team dynamic in startups. Why? Because running a business is not a linear path, challenges and conflicts will arise. Investors need to know that the team is cohesive and capable of resolving disputes quickly. Be honest about the team’s dynamics.

How do you plan to scale the team in the next 12 months?

In the startup world, everyone wears multiple hats initially. However, this is not sustainable as the company scales and grows. Before the pitch, founders should have an idea of their hiring strategy for the next year or two. Get straight to the point and outline the hiring plans.

Are you fully committed?

Investors consider founders who are not fully committed to the long-term success and vision of the company as red flags. They want assurance that every member of the leadership team is fully dedicated. Winners don’t "kind of" commit^; they fully commit. Be honest about your commitment.

How well do the founders know each other?

Research indicates that 70% of business partnerships fail, which poses a significant risk to investors. To mitigate this risk, investors often investigate the working relationship between co-founders. How long have the founders known each other? Have they worked together previously? Provide some details and be honest.

How do you handle conflicts of interest?

While this question may not apply to all founders, conflicts of interest can arise, especially if a founder leaves a company in the same industry to start a competing venture. Have a plan for how you will handle such conflicts and be honest about it. Investors appreciate transparency in addressing potential conflicts of interest.

Is there an existing board or advisors?

If experts believe in the startup, it gives investors more confidence. Advisors and Boards of Directors play a crucial role in guiding startups towards growth by providing valuable knowledge. Highlighting notable advisors on the team slide can serve as social proof and give founders leverage. Get straight to the point when discussing the presence of a board or advisors.

Is there a balance between business and technology in the founding team?

Industry-specific expertise is essential, but the founding team also needs a deep understanding of business-related skills such as product development, finance, marketing, and more. A balanced leadership team provides diverse perspectives on business growth and scalability. Get to the point and emphasize the importance of this balance.

Are any of the founders open to being bought out now?

Some investors may be interested in acquiring a larger stake in the company by buying out one or more founders. However, this question can also be a test to gauge the commitment level of specific founding members to the startup. Be cautious and navigate this question carefully.

Why are you the right person to bet on to achieve this?

It’s possible that other entrepreneurs have presented similar solutions to the same investor. To stand out, investors look for a strong team to back. This is the perfect opportunity to showcase your experience, highlight the dynamics within the team, and express your passion for the mission of the startup. Humble bragging is encouraged here.

#2 TRACTION- 10% of Questions

Traction is a crucial aspect for startups, whether they are pre-launch or post-launch. It demonstrates progress, user feedback, and product-market fit. The following questions aim to articulate the achievements made with existing resources:

What milestones have you achieved?

Highlight the milestones that showcase what the founding team has accomplished with their available resources. This includes completing research and development (R&D), launching a minimum viable product (MVP), and acquiring initial customers. For pre-launch startups, emphasize the progress made in a short amount of time with limited resources, focusing on user feedback and iteration. For post-launch startups, select relevant data to highlight a strong product-market fit. Use data to support your claims.

How many active users do you have?

The number of active users serves as proof of demand for the company’s solution. It demonstrates how close the startup is to achieving a product-market fit and showcases the founding team’s ability to acquire users or customers with limited resources. Provide data to show product usage and the total number of current customers. For B2B startups, this might translate into accounts and users per account. Utilize data to support your answer.

What key metrics is your team focused on?

The key metrics a company focuses on will depend on its business model and stage. For B2B companies, these metrics may include the number of accounts, average contract value, average contract length, and more. For B2C companies, it could be the total number of customers, average revenue per user, customer lifetime value, and other relevant metrics. Select 3-5 key metrics that are most important for your business and present them concisely. Again, support your answer with data.

What is your retention and churn rate?

For post-launch companies, customer retention and churn rates are valuable indicators of the value provided by a product. Healthy retention and low churn rates signal a potential product-market fit and demonstrate that the company delivers on its promises. Research industry benchmarks to understand what constitutes healthy retention and churn rates, and be prepared to provide relevant data. Honesty and transparency are key.

How many sales have you made?

This question is specifically for post-launch companies. The number of sales needed to generate substantial revenue may vary depending on the business model. B2B companies may require a smaller number of high-value sales, while B2C companies may need a larger volume of sales to achieve similar revenue. Provide open and honest information backed by data. Use data to support your answer.

How can early traction be accelerated?

Investors are often interested in understanding how quickly a startup can scale. If the primary issue is a lack of funding for sales and marketing, it’s a positive scenario as more funding can lead to accelerated growth. However, if the answer is more complex, such as requiring additional staff for each incremental sale, clearly explain the situation using charts and visuals. Support your response with data to illustrate potential growth opportunities.

How many monthly active users do you have?

For post-launch companies, the definition of "active" can vary. It is usually determined by the founders, but transparency in calculating and defining what constitutes an active user is crucial. Be honest about your metrics and how you measure user activity. Provide clarity and avoid ambiguity.

What is the Customer Acquisition Cost (CAC) or Customer Lifetime Value (LTV)?

For post-launch companies, CAC (Customer Acquisition Cost) represents how much the company spends, on average, to acquire a single customer. LTV (Customer Lifetime Value) estimates the average revenue generated by a customer or account throughout their lifetime. Be prepared to share relevant data on CAC and LTV to demonstrate your understanding of these metrics and their implications for the business.

What is the company’s Annual Run Rate (ARR)?

The annual Run Rate provides an estimate of the startup’s yearly income based on monthly financial data. It is calculated by multiplying the revenue earned in a given month by 12. Annual Recurring Revenue (ARR) is another term used for business models that involve subscription or contracted revenue. Share your ARR figure with the investors, providing them with a clear understanding of the startup’s financial performance. Utilize data to support your response.

You have a prototype and test run. What are the results?

Prototype testing and trial runs are crucial steps in assessing product-market fit. Whether it’s pilot tests, beta tests, pilot programs, or alpha tests, these initiatives demonstrate your willingness to test, listen to user feedback, and learn from the process. Measure the outcomes extensively and present the results, incorporating both quantitative data and user feedback to showcase the success story. Utilize data to support your response.

What is the daily usage rate?

For post-launch Software-as-a-Service (SaaS) companies, the daily usage rate is a relevant metric to gauge user engagement and product stickiness. Research industry benchmarks to understand what constitutes a "good" daily usage rate and share your data to provide investors with insights into user behavior and product adoption. Utilize data to support your response.

How long do users stay on average?

This question delves into user engagement and retention. For post-launch companies, understanding how long users stay on average is crucial to evaluate the value and stickiness of the product. Research industry benchmarks and compare your average user retention period to those benchmarks. Provide data to support your answer and highlight any strategies implemented to enhance user retention. Utilize data to support your response.

What is the annual growth rate?

Investors often inquire about the year-over-year percentage increase in revenue to assess the startup’s growth trajectory. This question is particularly relevant for later-stage companies or those with a few years of operation. Calculate and share your annual growth rate to showcase the startup’s growth potential. Utilize data to support your response.

What has held back your growth?

This question offers an opportunity, to be honest and build rapport with potential investors. Be transparent about the factors that have limited your growth thus far. It could include funding constraints, lack of sales and marketing resources, limited R&D spending, or other obstacles. While funding can often address these issues, investors value straightforward and honest answers. Provide open and transparent insights into what has hindered your growth. Be honest and forthright in your response.

What has been the principal reason for the traction?

Investors are interested in understanding the underlying reasons behind the startup’s early traction. Identify the factors that have contributed to your traction, such as a naturally strong acquisition engine, robust word-of-mouth marketing, successful partnerships, or effective advertising strategies. Use data to analyze the traction and provide insights into the principal reasons driving it. Utilize data to support your response.