10 Questions every Start-Up should be ready to Answer

by Scott E McGlon

If you really want to be proactively positioned with potential investors, you must be able to answer what I call "the critical ten".  These questions remove any doubt in potential investors minds that you, as a founder of a start-up, have what it takes to get your start-up to a self-sustaining business.  

Over the past few years, "boiler plate" answers, "canned" presentations, and flying start-up lingo and buzz-words are in almost every executive summary, business plan, and/or start-up presentations to seed, angels, or VC's.  If you get nothing out of this blog entry, take the following with you: show sincere passion and be yourself.  There is nothing more unappealing than listening to a young founder going over-the-top to try impress the investor(s).  My simple advice to every start-up is to be upfront, honest, and straight-forward with the answers to the following questions:

1. How much "skin" is already in the game? Every investor wants to know the level of commitment from the founders in both cash and "sweat equity" and what was sacrificed along the way (quit my job, quit school, etc.).  Also, knowing how many others and amounts that others have put into the business will be asked - this can be from family, relatives, or friends. To really knock your answer out of the park, be prepared to cover what you have done with the initial funding and what specific progress has been made to get the wheels rolling in the right direction.   
2. What's the total history of this company? When was the first day of your start-up? When did you incorporate? When did you get your first customer/sale? etc. etc.  Any time gaps within the history of a start-up are big red flags to any investor. If the company was incorporated three years ago, still has the same management shell, has little to no sales, and is still considered to be in an early start-up stage, chances are very low that a new investor will change anything unless the investor brings to the table connections that could jump-start the company.  
3. What currently protects your intellectual property? From number of provisional/non-provisional patents a founder has filed to actual utility or design patents granted, knowing how you have your IP covered is critical.  Also, covering your content & processes with copyright protection and your marks & brands with filed Trademarks is very important to any investor.  How you protect your IP will be a significant part of how your start-up will be valued.  
4. Are there any real customer we can talk to? Real customer's (one-time or residual) is key in establishing the grade level of success to an investor.  What margins are being obtained?  How many installs have you done?  How many different sectors have you covered?  If all you talk about is "beta", "trials", and "fully-tested" doesn't bring the confidence compared to a paying customer.  Be proactive if there are no customers in the pipeline by covering when the product will be ready to ship and the market sectors you will be presenting it to.
5. What keeps you up at night? This seems like a simple question with an easy answer but how a founder answers it is critical to most investors.  Every investor has had plenty of sleepless nights so you answer doesn't need to be "nothing".  Addressing challenges within your KPI's, competitive landscape, protection of your IP, or all of the above is a good start.  Be honest.
6. What is your burn rate and runway today? These are investor slang terms referring to how fast money is being spent per month (burn rate) to operate, with an implicit question of how long your start-up can survive before break-even or another cash infusion/investment round is required (runway). If the runway is less than six months, understand the potential investors will quickly realize what risks are involved and how much additional cash will be needed to make this start-up stable.  
7. How well do the founders get along with each other, and with the team? The smartest and strongest entrepreneurs are often the most demanding, so some conflict is expected. Again, be honest.  Stating that "we are all very driven, passionate" etc. is good to cover in detail.  However, excessive conflict, minimal respect, and lack of communication, points to a dysfunctional team which will lead to an inevitable failure. You, as a founder, might not cover this but it will be revealed during the investors due diligence. 
8. Who do you have as outside board members? The only true outside board or advisory members are not family members, not current investors, but are experienced former or current successful entrepreneurs with a deep knowledge of a certain area that connects to the start-ups operations or financial make-up.  More importantly, having the right outside board member or adviser brings the right connections that can propel your business to the next level.  Understand that most investors will want to speak with your board or advisory team so be prepared to offer them up!
9. What's in this deal for me? No matter the type of investor you are talking to, understand they are looking at your start-up as a very big risk. So, the potential return better be significant (at least 10x) and covered in your teaser.  The advantageous terms you outline to the investor before the investor has to ask for it is critical in getting an investor excited and confident about your start-up.  What qualitative and quantitative traction can be measured today?  Show it off to the investor!
   
10. Tell me about you and your team? You need to be alive and kicking showing every ounce of passion you have toward your start-up, the people behind you, and your glowing confidence that it will be successful. Sincere passion backed with sound execution metrics is what will drive investors wanting more. Also, do you homework! - understand where the investor came from and the qualities that made them successful.  If you can design your presentation around those qualities, it will certainly help your chances in optimizing their attention and interest. 

Relax!  Being cool under pressure defines confidence with an audience that knows it well.   Understanding these questions and presenting the right answers will determine the level of success you achieve with any investor that you get in front of.   

Now, go get'em!

Scott E McGlon is the President of McGlon Properties, LLC and the author of many blog post on MP Blog.  He has been a serial entrepreneur, investor, and president of many successful start-ups since 1998.