The 8 questions a VC needs to answer before they invest.

Mark Annett
Aug 9, 2017 · 4 min read

Here are the questions an investor (VC or angel) needs to answer for themselves before they invest and the order they ideally want them answered:

1) Is the market big enough that it is something I want to play in?

2) What portion of the market are they going after? And how will they make money?

3) What is their product or service and why would the market want it over existing?

4) Who is the team involved and why will they be successful?

5) What traction do they have already?

6) Who is their competition? And what are the risks and how are the mitigated?

7) What are their revenue projections? And how quickly might they get to exit?

What most people don’t realize is that the least important question to an investor is 3) what is the product or service. This because almost all companies pivot (change the direction of the product or service), which is why question 4), team, is so important.

When pitching, you have one goal, which is to tell a story with your pitch. The story that you need to tell is the one above. If you go into too much detail with respect to any one question then the full story will get lost.

Even though a pitch is a presentation, you are actually trying to have a conversation with the investors through your pitch. As such, I would suggest that you actually try answering these questions verbally before trying to create the 8–10 slides that you will use for your presentation. Actually have someone ask you the questions above and then you answer them.

I would suggest you try doing it a couple times both in person and at least once over the phone with someone.

Ask the person to ask you the questions one at a time, without asking any follow up questions, until the end. Then, at the end, ask them what questions they didn’t understand.

Note: if it is 3) then you need to focus on making your explanation shorter and tighter, rather than providing more details, which is why doing it on the phone is such a useful exercise. Analogies can be really powerful here. For example, “We do for _______ what Excel did for accounting. We automate a tedious time consuming manual process and do all the heavy lifting so that ________ can focus on __________.”

Then you want to add something like, “By doing so we not only make it ___% more profitable for ______ but we also _________.”

Unless you are presenting to technical experts, besides a couple of pictures showing your product or service, this is really all you need to provide an investor with related to your product or service.

Most investors don’t care to understand the technical details, because that is your job.

However, what they do want to be able to do is call people on your behalf and make connections for you. If you can make a really tight/simple explanation that they can then use when they make the connection for you then that helps them help you!

So this actually leads to the final question that an investor tries to answer before saying, “Yes.”

8) Can I add value here? Do I have people in my Rolodex that I can get involved in this project?

With respect to this last one, it might seem like you have no control over it, but that isn’t necessarily true. This last question is why investors invest in a vertical, because that is where there Rolodex is already. If they don’t have a Rolodex in the vertical and believe that they can help then it is highly unlikely that they will ever be the “lead” investor for you.

However, by doing research and finding out who they have invested in already and being able to say things like: “Our business model is very similar to ______ that you have already invested in _____ “ OR “We are very complimentary/adjacent to ______”. Once you get them thinking down the lines of how they can help you this is what will typically close the deal, assuming the other questions were answered to their satisfaction.

If your research didn’t turn up any comparable investments, there is nothing wrong with saying that we are still looking for a lead investor and want to know if you would be interested in looking at this opportunity as a “follow on” investor.

Good luck,

Mark

Mark Annett

Written by

Mark Annett is a patent agent and blockchain champion who runs a think tank that creates or acquires intellectual property and turns it into companies.

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