Top 25 hard questions investors may ask you (2024)

FAQs

What are the questions asked by an investor? ›

Key summary. Investors want to understand how the company operates under the bonnet and ensure there is sensible business structure beyond the founder(s) they've been speaking to during the fundraising process.

So they're going to want to know exactly why you need the cash and exactly what you plan to do with it. They'll also want to know when they can expect a return; that should be a part of your business plan. Investors will also be looking for an exit strategy, and you need to think about that in advance.

To help with this conversation, I like to frame fund expenses in terms of what I call the Four C's of Investment Costs: Capacity, Craftsmanship, Complexity, and Contribution.

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

What do investors look for in a plan? ›

The Financial Ask & Answer

How you intend to use the money should also be clear and logical. Investors need to know that you'll spend their money responsibly and that there's proof that how you spend the money will result in revenue growth. Every dollar should be allocated to a specific destination for a good reason.

Investors typically look at a startup's market reach, both the current market reach and the potential for future opportunities. Therefore, startups must demonstrate that their markets are already engaging with their products or services and are providing feedback that the team uses to drive improvement.

VCs will want to know what milestones — particularly those related to growth and revenue — you will hit and when. If your startup has no immediate plan for revenue, say, because product development will take time, you should be ready to list other benchmarks you will achieve in lieu of revenue.

As with an interview for any job, make sure you do plenty of research about the company before you go. See what they have done well in the last few years, along with focusing on the parts that they could improve on. Make sure you're aware of what their portfolio consists of and what kind of investments they focus on.

The Investor Questionnaire suggests an asset allocation based on information you enter about your investment objectives and experience, time horizon, risk tolerance, and financial situation. Your asset allocation is how your portfolio is divided among stocks, bonds, and short-term reserves.

What to Offer Investors in Return? Most investors expect to receive a stake in your business in exchange for their funding. Venture capitalists might be willing to take on greater risk, such as requiring 40% of the company if the product is still in development.