Table of Contents
- 1. How Much Funding Do You Require and How Will You Use It?
- 2. What Problem Does Your Startup Solve?
- 3. What is Your Business Model?
- 4. What Are Your Financial Projections?
- 5. What Are the Key Risks and Challenges Your Startup Faces?
- 6. Have You Protected Your Startup’s Intellectual Property?
- 7. What is Your Exit Strategy?
- Key Takeaways
- Frequently Asked Questions
When seeking external investment for your startup, being well-prepared to answer various investor questions is crucial. Many types of external investors exist, including venture capitalists and angel investors. However, a critical objective that unites them all is that they want to ensure their investments are secure. They will want to know that you have carefully crafted a viable business plan and you have the capabilities to execute it. This article will outline several common questions external investors might ask about your startup before they provide funding.
1. How Much Funding Do You Require and How Will You Use It?
One of the first questions an investor will ask concerns your funding needs. You should be able to specify your funding requirements and provide a detailed breakdown of how you will use the investment. For example, you might use it for:
- developing new products or services;
- marketing;
- hiring; or
- other critical areas you need to invest in to grow your startup business.
You should be able to map precisely how this funding will help you reach specific milestones.
2. What Problem Does Your Startup Solve?
To establish your startup’s market opportunity, external investors will want to know the specific problem your startup’s product or service addresses. They might ask you to explain why this is a significant problem and how your startup aims to solve it.
In response to this question, you should be able to provide evidence of your target market and the market need to justify your startup’s offering. You might use data such as survey responses, testimonials, or your business’s track record.
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3. What is Your Business Model?
Potential investors want to see a comprehensive business model. They will want to know precisely how your startup plans to make money. Your business model should be thorough, outlining your startup’s growth and operations strategies. Also, prepare to discuss your cost structure and how you plan to achieve profitability.
You should have crucial documentation ready, such as your articles of association and information about your startup’s governance structure. You should also gather essential contracts, such as partnership and employment contracts. Before you give these to potential investors, a lawyer can review them and ensure they are legally sound and up-to-date.
4. What Are Your Financial Projections?
Before they provide any investment, potential investors will want to see realistic financial projections. You should provide thorough and accurate information, including details of your startup’s:
- income;
- cash flow;
- operating costs; and
- any additional expenses.
You should prepare to justify your projections and explain how you plan to achieve them. Your projections should align with the key stages you outlined in your business plan.
5. What Are the Key Risks and Challenges Your Startup Faces?
You should be honest with investors about the potential risks and challenges your startup might encounter as it grows. Your answer should show that you have considered these risks and are prepared to mitigate them.
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6. Have You Protected Your Startup’s Intellectual Property?
Your startup’s intellectual property assets are crucial. Not protecting them exposes your business to several risks, including brand dilution. Intellectual property includes your startup’s trade marks and patents. You should register these with the Intellectual Property Office (IPO) to ensure you have clear ownership.
7. What is Your Exit Strategy?
Investors will want to know about your exit strategy. Consider this carefully to demonstrate that you have thought about different exit scenarios and established a realistic timeline for achieving them.
Key Takeaways
For startup founders, securing investment is highly competitive. By thoroughly preparing and understanding your market, you can effectively respond to investors’ questions, increasing your chances of funding and strengthening your strategic foundation. Transparency, clarity, and accuracy are essential. You must be honest, support your claims with evidence, and present a clear growth vision. Seeking legal advice can also help you prepare your business, protect intellectual property, and ensure legal soundness, mitigating risks and improving investment prospects.
If you require legal advice about setting up your startup and securing investment, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A comprehensive business model should outline how your startup plans to generate revenue, including growth and operations strategies. Include details about your cost structure and profitability plan. Essential documents like articles of association, governance structure, and key contracts should be ready for review.
Intellectual property protection is crucial. Register your trademarks and patents with the Intellectual Property Office (IPO) to ensure clear ownership. Protecting your IP mitigates risks like brand dilution and enhances your startup’s value.
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