If you are looking for a loan or an investor, are you prepared to present a rock solid idea to them? Whether you are a start up or a giant company, investors ask tough questions. Fortunately, most questions fall into just a few categories.
In fact, if you can confidently answer these 5 investor questions, you’re probably ready to make your first investor meeting… but if you stumble on these, don’t even think about raising money yet. Here’s my top 5 questions from investors:
- Exactly What Do You Do? Can you really tell someone exactly what you are going to make or do? Make a list of the features of your product. Decide exactly what it will look like. Practice until you can describe it in 10 words or less. Five words would be better. Until you can say it in one breath (without laughing), don’t even think about approaching an investor or bank.
- How Do You Make Money?
You don’t have to sell your primary product…but you have to sell something. What will it be? Maybe like Twitter you’ll give away memberships and messaging for free, but sell $85 million in advertising and data. Or maybe like TiVo you’ll make a low-cost device and sell a subscription service. If you need some help thinking through this, use this business model template to see how your products and your revenues work together to benefit you and your customers.
- Who is on Your (Perfect) Team
Even if your new effort has no partners or employees yet, you should be able to describe your ideal team. Draw a simple “box-and-line” org chart, or simply list the job titles of all the people you’ll need in the first year or two. Remember to include sales, operations and finance. Some of the people may even come from outside your company – like a lawyer and accountant or finance advisor. Name names if you can, and leave the rest “TBD” – to be decided.
- How Much Do You Need (Now and Later)?
Investors know that there are two kinds of expenses – start up (investment) costs and operating costs. Be sure you know both. Will you buy machines, computers or tools before you launch this new concept? Those are investment expenses. Rent and salaries to keep you going are operating expenses. List as many expenses as you can – keeping the start up costs separate from the operating expenses. But don’t guess. If you’re not sure about the cost of something, find out now!
- Who Else Believes In You?
To score with an investor you need credibility. Credibility can mean prior capital investment, or it can mean business partners who have signed on to support you. It can even be testimonials from leaders in the field. So before you approach an investor, make a short list of those people who are most important to your success and think about how you will win their support (then go and do it as soon as possible).
PS: I’ve started dozens of businesses, and written hundreds of business plans for entrepreneurs around the world. Check out my business plan template and cap table under downloads!
Photo credit: Jennie Leese, www.Trendpreneur.com