questions an investor will ask and how to answer them

Dear Founders, These Are the Questions A Good Investor Will Ask

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You're a founder or entrepreneur pitching your startup to investors. Your pitch deck is all ready, you feel good and you're ready to dazzle them. But here comes the dreaded part most founders fear: The Q&A portion.

We've got you covered. Not only should you anticipate these questions being asked, you should be glad that your investor is, well, invested in you enough to find out more. In this piece, we also look at how you should address these questions and concerns. Let's dive in.
In this companion piece to Dear Founders, here’s how to pitch to investors, we look at four key questions investors ask founders and offer a few tips on how you can take these on. When constructing your pitch deck and preparing answers for the Q&A session, be sure to include these critical questions:

1. State your business. What is the problem your startup aims to solve? Why this problem?

“So, trucking is one of the largest unorganized segments in India. And every stakeholder who deals in this industry has a large number of pain points. And what we are doing is making things simple for people and making things efficient.” – Rajesh Yabaji, co-founder and CEO at BlackBuck, India’s largest trucking logistics company

Sustainability and nation-building are major considerations for some investors. Is your startup here to fix systemic gaps, like India’s largest digital health platform Pharmeasy, or an industry-wide issue like cross-border payments company Thunes? Make sure to identify the pain point your startup aims to focus on, and how your startup wants to solve this.

rajesh yabaji
Rajesh Yabaji, Co-founder and CEO at BlackBuck
The ‘Why’ is also essential while pitching. Aside from providing a good narrative for your startup, it also shows the investor where you and your team come from and what motivates you to keep going. “They had a passion about it, but it was very, very, very early,” said Hans Tung, Managing Partner, on hearing about the ‘why’ during his first meetings with founders of Wish.com, Musical.ly, and Xiaomi. “And I think the benefit of being a VC for a while, and survived, is that you still recognize patterns… You’re willing to suspend disbelief and believe that those one or two things could be magical if it happens.” Some investors may also view this as a test of how flexible your team is prepared to be should you need to pivot your model in the future.
Jixun Foo Managing Partner GGV Capital
Jixun Foo, Managing Partner, GGV Capital

2. Where do you see your business in the next five years? What are your crisis plans?

“I think investors are looking  to…[see] how do you handle a crisis like this, how do you deal with the challenges.” – Jixun Foo, Managing Partner, GGV Capital on how founders should handle crises.

This is a test of how forward-looking the management team is, their grasp of the current market, and their ability to anticipate roadblocks and plan for these. Your answer should cover market challenges, future key staff recruitment plans tas your startup grows, and some secondary scenarios that demonstrate your startup’s readiness to adapt. Strategies to tide over a major economic crisis like the recent Covid-19 pandemic can be a good case study.

“Being truthful and honest is absolutely critical with your investors. Your investors actually have an interest to help you. If you don’t articulate the problem, I don’t think they will be able to know how to help you.” – Brian Gu, Vice Chairman and President of XPENG Motors

Be upfront about any anticipated challenges and acknowledge the areas where your team may need help. Doing this shows an awareness of the gaps in your expertise and a willingness to ask for support when needed. Even Thunes’ CEO, Peter De Caluwe admitted freely, “I’m probably still a very traditional European person, and I don’t think big enough. I need to push myself every time very hard to think way bigger than what I’m thinking of.”

3. What domain expertise does your team have? Why did you come together to start the business?

It’s very difficult to find a team of four or five co-founders that can work efficiently well with each other. It is not easy at all.” – Hans Tung, Managing Partner, GGV Capital

If you are an early startup, investors want to know if there are qualified core members with complementary skill sets and a shared ideology.

For Pharmeasy, Siddharth commented on his three co-founders, “Each one of us picked up a part of the problem to solve and worked really hard at that. And that’s what’s allowed us to focus on growing ourselves. So, in some sense, you can say that we’re all generalists. But internally, each one of us has now actually become a specialist on a certain part of the business.”

Siddharth’s team included engineers and a trained medical doctor, who oversaw marketing and growth, technology, and operations while he played generalist and dispute arbitrator. Investors also want the assurance of seeing a team that is fully committed to the cause of the startup, and not just moonlighting – this shows that they too are invested in ensuring success.
Hans Tung, Managing Partner, GGV Capital
Hans Tung, Managing Partner, GGV Capital
Jenny Lee, Managing Partner, GGV Capital
Jenny Lee, Managing Partner, GGV Capital

4. Who are your competitors? What is the market share you aim to capture?

But I think as a CEO, it’s not just about understanding a technology, a product, and the team, it’s also very important to understand the customer.” – Jenny Lee, Managing Partner, GGV Capital

Having a solid grasp of your competitors is a good sign that you have done your research and are well aware of the industry standards you are up against. Even if your investors-to-be are sector experts, they want to hear from the horse’s mouth about the companies you are measuring yourself against.
While speaking about market share may overlap with your five-year business plan, it should focus more on your go-to-market strategy – how you plan to deliver value to the market and win over customers. Having a clear plan featuring customer segmentation is another positive sign investors look for. To sum up, make life easier for yourselves – and your potential investors – by preparing your responses in advance. In today’s highly competitive market, clarity and transparency are key. Ultimately, it means you showcase your business in the best light right from the start.  
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