There are a variety of reasons for investors to invest, but a key factor is ROI (Return on Investment). At the seed stage, they’re taking a lot of risks and it’s common for them to see over 80% of their portfolio companies fail before turning a profit. To make it worth their while, they look for hyper-growth companies; ones that have the potential to provide a 10x and beyond ROI as they scale.
As an entrepreneur at the seed stage, it’s important to understand what’s going on in a potential investor’s head so that you can best position yourself to win them over.
The top 5 questions asked by early-stage investors
Do I like you and your team?
At the core, investors want to know if they can trust you with their money. They want to make sure you’re coachable, that you can execute, and that you have realistic expectations of yourself and the business. In the end, this question is all about whether or not your team has the right skills and mindset to succeed.
How are you different?
An active investor has likely heard at least 5 other pitches that sound exactly like yours. You need to show them what makes your business stand out and demonstrate that customers perceive enough difference and added value to choose your product or service over others. This question also requires you to prove how well you know your market and provide a solid plan for how you’ll grow and scale.
How are you going to make me money?
Investors look at how you’ll grow and scale to know how they can exit or make returns. Be ready to discuss your revenue model, the size of the market you’re targeting and your go-to-market strategy.
When am I going to get my money back?
Simply put, many investors have a timeline they like to work within and they want to know if you’ll be able to return their investment within it.
What’s the impact of your business?
Impact is a broad term. Some investors will focus on the potential for your business to disrupt the industry. Others care about the environmental, community, health, or mental wellbeing influence that your business has through your product/service or the code of conduct which you hold yourself to.
Reality Check
Not all businesses are venture-scale and not all entrepreneurs feel comfortable with venture-style investors. Fortunately, there are other ways to find funding that may be more aligned with your needs!
