Questions Entrepreneurs Need to Answer
As an entrepreneurial student I am constantly being told the astronomical odds of a new start-up getting VC funding and eventually launching an IPO.There has been an explosion of entrepreneurial ventures in the past 20 years, especially in silicon valley with the creation and success of many technology companies that many of us use. In today’s business and entrepreneurial society the game is very cut throat, but with success stories like Facebook & Uber everyone wants to come up with the next “big thing”. As a result many people who believe they could be great entrepreneurs are starting to come up with new ideas or innovations to an already existing product. With these new ideas and companies, many are seeking funding either through angels or VC’s, but many go into meetings with angels and VC’s unprepared to answer some serious questions. Correspondingly many entrepreneurs that can’t answer important questions asked by the VC or angel end up having their idea shot down before it even started. In order to be successful in getting funding, to me there are some questions that an entrepreneur must be able to answer when questioned by whomever they are attempting to get funding from. These questions involve the people involved, the market size, the competitors, and the risk/reward for investing.
One of the first things a potential investor will want you to elaborate on is this people you will be working with on your venture, most importantly the co-founders. Common questions would include; where are the co-founders from, where have they been educated,where have they worked and for whom? These are just basic questions but the answers can hold a lot of weight. So when deciding who to get involved with for a new venture, an entrepreneur must be careful. They may also ask more personal questions such as; what have they accomplished both professionally and personally, what skills abilities and knowledge do they have, how are these skills and abilities relevant to the venture you are pursuing? As an entrepreneur if you can go into a funding meeting while confidently and honestly answer these questions for a VC’s or angel, it will make them feel a better connection with you and the people you work with. Hopefully the connection is a positive one and you can move on into more detail about the venture itself.
The size of the market and its competitors are also a huge factors in providing funding for a start-up. As an entrepreneur you must decide what market you want to get in, but if you want to have a venture that gets VC’s funding and eventually goes public, the odds are the market size is going to be pretty large. “If your goal is to build a scalable startup then you need to focus on where large amounts of money are spent and/or where large amounts of will be spent” So before entering a meeting with a potential investor of your venture be sure to know your market size inside and out. This includes how many potential customers are currently in the market and how you will reach new customers to this market. You may want to include barriers of entry as well and how tough the barriers are. Second you must know your competition in the market, how will they respond to you entering the market? Do they have the resources to weed you out of the market? Do they have a well established brand within the market? If the answer is yes to these questions, you as an entrepreneur need to have the ability to explain and show how your new venture will compete with these competitors.
When watching some entrepreneurs give their pitch to potential or fake VC’s for practice I’ve noticed some of them say there is no risk in investing in their venture. To me this is a huge mistake, there is risk in every investment and VC’s know this, so it is a major disservice to yourself to tell an investor there isn’t a risk. Instead I as an entrepreneur would point out the potential risks of investing in my venture, and explain how me and my team would overcome any obstacles that came our way. Then focus on the reward to investing in you and your venture, at the end of the day the VC’s are there to make their money back and then some, this can come from equity in the company. Many VC’s will want as much as 20–30% equity in your company when investing, this gives them enough to have some control on how the company is ran, and if the company goes public the VC’s pay day will be substantial.
While there are many questions an entrepreneur and their team should be able to answer while asking for funding, to me these are some of the most important ones. An entrepreneur should have these questions down on top of other important aspects that go into getting funding.
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