You’ve just scheduled your first interview with a pre-seed investor?
Well done you!
Unfortunately, there’s no time for celebration… this is the real signal that you should start prepping!
We’ve made a list of the questions that VCs ask during initial meetings. This is a mix of questions that we were asked directly, feedback received from Startupmag users and tons of research.
The topics in these conversations are always similar. However, the questions can land in a random order. And the wording can be slightly different and confusing. To make things easier, we have grouped all of these questions into themes. This is very similar to the structure of a typical pitch deck.
A few tips before you start reading those questions:
Pitch deck - you may not need it, but it’s a very good thought exercise to fine tune your plan
Define your roles (more than one founder) - who answers what type of question?
Prototype - have something to play with, something visual and/or entertaining
Jargon: make sure you understand all the VC acronyms mentioned in the question database. They may not come up and you can always ask for clarifications, however it will be easier and less pressure if you’re fluent in “VC lingo”.
How will the meeting start?
a - Preliminary chat (small talk)
There’s no way around it. Whether it’s before the meeting, in the lift, or during the awkward goodbyes... small talk will happen. You don’t have to play the game, but you are here to grow your network so use this to your advantage. Make the small talk meaningful by directing the conversation. Do your research and show it. Who has the VC invested in recently? Any successful exits? Any interesting joint investments?
b - VC Presentations
VCs usually have a little ‘this is who we are’ spiel ready. Engage, ask questions. This is about knowing if you are a good match. It goes both ways. Don’t just ask questions to be polite, be genuine and learn.
c - Now it’s your turn!!
Start with what will make you stand out:
Is that you and your track record?
Is it the problem you are going to solve?
Is it the solution you are bringing?
Give the VCs a reason to listen up. You will get to all 3 of these topics, but start with your strong point.
From here the questions should start pouring in… good luck!!
You and your track record
Who are you?
How did you get to this project?
How long have you known each other?
Have you done this before?
Do you have a track record?
Do you have experience in the industry you are attacking?
Who are the founders and key team members?
What relevant domain experience does the team have?
What key additions to the team are needed in the short term?
Why is the team uniquely capable to execute the company’s business plan?
How many employees does the company have?
What motivates the founders?
How do you plan to scale the team in the next 12 months?
Have a good story ready for how you know each other
Decide who will talk first
Don’t cut each other off
The problem you are going to solve
What is really wrong?
What are you trying to fix?
Make it relatable.
The solution you are bringing to the table
What are you making? How is it different to X? Is there anything proprietary?
Why do users care about your product or service?
What are the major product milestones?
What are the key differentiated features of your product or service?
What have you learned from early versions of the product or service?
What are the two or three key features you plan to add?
How often do you envision enhancing or updating the product or service?
How differentiated is the company’s technology?
What competitive advantages will there be over existing technology?
How easy will it be to replicate the technology?
How costly will it be to build the technology into each product?
Part 3 - Free style!
From here, the conversation can go in several directions often led by the questions from the VC investors. If there are no questions, make sure you answer the following topics:
How big is your market?
What % of that market can you realistically conquer?
Why is now a good time for the market but also for you?
You don’t have to list the numbers out like a school presentation but make sure you understand the difference between TAM, SAM, SOM.
Stick with numbers you can back.
If you have to give estimates, explain how you got there
This is a chance to show your understanding of your clients.
Where are you now (Market validation, traction, customer acceptance)
What have you built today?
What shows us that people want what you are building?
How developed is the product?
Have you performed any tests? Were there any paid tests? What are the key things you learned?
Where can I go to use the product?
How much revenue have you made to date?
What is your current Annual Run Rate (ARR)?
How many total active users are using the product or service?
How often are they using the product or service?
How many used it in the past month?
How many customers are paying for the product or service today?
Any other key metrics you want to share?
Monthly Active Users (MAU)?
Revenue growth rate, Month over Month (MoM)?
This is about deeply knowing your market.
Who are you up against?
Why are you different?
How are you better?
Why are the larger players not attacking this?
Why are you the right people to win this game?
Who are the direct and indirect competitors?
What are the barriers to entry? Differentiation?
The answer is never ever ‘we have no competition’.
How are your customers solving this problem without you?
How are you planning on making money?
What is the price for each product or/and service?
What is the average price per unit?
Is the revenue recurring or one-time?
What is the average revenue per customer in USD?
How often do customers buy your product on average?
What are your ideas to…increase revenue? Shorten sales of sales cycle? Increase price or volume?
Show as much recurring revenue as possible
Go to market strategy
How are you going to get more clients?
How are you going to grow?
What’s the plan?
How much do things cost?
Product Cost: What is the cost of your product to make per unit for each product and/or service?
CAC: What is your cost of customer acquisition (CAC) (Cost to acquire) one customer? (average cost in USD)
Burn rate: What is the average total monthly expenses for the startup? (Use the average over the last few (usually 2–3) months)
How much do you make?
What is your expected Lifetime Customer Value (LTV)?
Total amount a customer spends over their lifetime with the business.
How much cash is left in the bank now (USD)? Total cash divided by burn rate gives you the months of ‘runway’ left)
What is your gross margin? (sales price minus unit cost) divided by sales price as a percentage
Keep this simple.
If you have several price plans, prepare averages.
What are you planning on making in Year 1, 2, 3?
Ideas on improving gross margin?
What are the biggest expenses?
Cost of marketing and sales and expected output over time?
This is tough. VCs know it’s difficult to be accurate. But you should have a plan.
usiness angels will be a lot more fussy on sticking to the business plan (don’t oversell)
What are the risks linked to your business?
What do you see as the principal risks to the business?
What legal risks do you have? Will the business model comply with applicable laws, including expanding privacy protections?
What technology risks do you have?
Do you have any regulatory risks?
Are there any product liability risks?
What steps do you anticipate taking to mitigate such risks?
What are your funding requirements
How much are you looking for?
What are you going to do with the money?
How long will the money last?
How much capital have you previously raised in total to date?
What is the current funding round? (Pre-Seed, Seed, Seed+, Series A, Series B, Series C+)
How much capital has already been spent to date?
How much are you currently raising?
How much capital has already been committed in the round?
What is the current pre-money valuation? Or Cap on the Convertible Note / SAFE?
Who are the investors in the previous round? Committed to this round?
Of the previous investors, who is the lead? Who are the new investors? Are the previous investors coming back? Do they have any debt?
Don’t give a range
Try not to give a valuation.
Exit strategy / oppurtinity
What is the strategy? IPO? Get acquired?
Who are the potential of acquirers? Why would they buy vs. build?
Know your audience.
Some VCs are looking for moonshots, others for lower risk return.
Be very ambitious, but not naive.
Part 4 - What happens now?
What happens now? What is your process? What are your usual timings?
What are your usual timings?
What is your process?
Get the information you need, but don’t be needy. Don’t put unnecessary pressure for a quick turnaround. You’ve finished your pitch. Don’t try and play catchup at this point.
Bonus questions / tips
Elevator pitch: Can you describe the company for me in one sentence? More specifically, who is paying who for what? Who is helping you? Who believes in you?
Board & Advisors: Any notable advisors with key relationships, prior successes and/or failures?
What is your hole?
When are you paying me back?
Why won’t a huge corporation build something like this?
Why hasn’t this worked before?
How do you define success for you and your company?
What is the end goal?
Do you know [insert company]? Why not?
What is your plan to grow?
Why haven’t you gotten traction?
Debt or equity?
Be careful… An early question can sometimes throw you off track. Forcing you to answer questions about financials before explaining the problem. Make a contingency plan. If this happens, make a route back to your story.