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October 28, 2012

Six Questions to Expect from Venture Capitalists

When you’re pitching venture capitalists, try to remember that they’re people too. They have unique personalities, and if you’re wise, you’ll cater your approach to your audience. You’ll get different questions, different opinions and different reactions from each individual or group you approach.

On the other hand, you’ll find that some questions will come up over and over – and these are typically the more crucial ones. If you stumble on an obscure question that a random VC brings up, it’s probably no big deal. However, if you can’t answer these more common questions clearly, concisely and confidently, you’d better sit down and think things through before you proceed.

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1. What’s your business all about?

This is basically your chance to grab your VC’s attention and get them hooked. The question may vary in wording, but the concept is the same: give me your “elevator pitch”. You have one to two minutes to sell them on something simple and power-packed that will stick with them and keep them interested in you and your idea.

2. What problem are you trying to solve?

Venture capitalists aren’t out looking for mom ‘n pop shops to fund. They’re looking for the “next big thing” – something that solves a common problem or meets a common need (or want). They are typically looking for at least a 10X return on their initial investment, and that will only come about if your idea has the potential to bring in customers.

3. Who is your target market – and how big is it?

Ideally, you’ll already have a few potential customers who are interested in your idea. Investors are looking to see if – and how well – your idea is going to catch on. Have a clear picture of the market you’re aiming for, present the current interest you’ve generated, and the potential market you’re expecting in the future.

4. What makes your product unique?

Realize that venture capitalists know the market, so you’d better know it as well. If your idea is just one more in an already saturated field, you’re not going to get even a nibble. If you want to garner interest from investors, figure out what makes you and your product unique. Figure out what makes you stand out and clearly describe how those unique qualities will be valued by your potential customers.

5. What does your competition look like?

Remember: there’s nearly always competition, and potential investors know it. Don’t try to skirt the issue. Instead, come prepared, knowing your top competitors and the ways you intend to tackle them.

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6. What does your team look like?

Lastly, while investors are looking for solid ideas to get behind, they’re typically more interested in the people than the plans. A great plan will go nowhere without the right team behind it. Be ready to sell them on you and your people by giving an idea of your backgrounds, how you came together, and how you intend to build in the future.

Peter

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