During our time at the Winter Founders Program, all of the startup groups pitched their idea to about 40 angels and venture capitalists at an event put on by Y Combinator called Angel Day. In addition to Angel Day, we also pitched Wufoo to about 5-10 investors in follow-up presentations. After a few meetings, we started to notice the same questions being asked over and over again. If you’ve never met with angels or VCs and are curious as to what they might want to know, here is a list of the more common questions we fielded.
1) Who else have you spoken to?
I believe every single investor asked this early on and I’m not completely sure why they cared so much since they should be basing their judgment and strategy on the strength of the idea and not on its popularity. I think it’s because Silicon Valley is a lot like high school in that you’re basically as cool as the people who talk to you. Being funded by Sequoia, is not unlike dating the hottest cheerleader in the squad. Then again, maybe it’s just natural human curiosity. Either way, it’s a good idea to keep at the top of your head who you’ve talked to and their appropriate place in the pecking order.
2) How will you make money?
If Adsense is your stratetgy, you might want to start thinking of some alternate revenue models. After one investor asked us this question, he quickly said under his breath in a little prayer, “Please don’t say Adsense.â€ If you already have a million users, then the investors are going to listen to you no matter what you have planned. That said, investors are getting hip to the notion that funding a Web 2.0 startup that’s obsessed more with the technology than the revenue is just asking for trouble.
3) How will your company grow?
Investors want a return on their investment, and they naturally want to see you grow your market. I believe going over this question with your co-founders is a great exercise, because your company in three years is going to be very different from what it is right now. Always good to have everyone on the same page about how things should pan out. It doesn’t have to be detailed, just think about whether your growth strategy is going to be achieved by creating new product lines, reaching foreign markets, or adding some nifty features.
4) What technologies do you use?
We’ve noticed that a lot of the investors are ex-programmers and enjoy showing off a little programming speak, but why they all care about this just stumps me. Basically, we’ve seen every kind of language being gobbled up by the big boys. When it comes down to it, it doesn’t seem to matter whether you write your application in Ruby, PHP, Python, ColdFusion or even .NET. Users pay attention to the ends, not the means. Instead of asking whether we think MySQL can really handle a large set of users, they should be asking us is how we’re planning to keep our interface intuitive and responsive. On a related note, mentioning buzzwords like AJAX or standards doesn’t seem to matter all that much to anyone out there.
5) How easily can you be copied?
If you’re writing a web app, chances are there are a lot of other teams who could create a similar program (if you’ve got no competitors you might be working on the wrong thing). We tried to be as honest as possible when answering people, so our standard response to this one went something like this: “Um, not to toot our own horns, but we’re pretty good at what we do, but nothing changes the fact that Wufoo is a computer program written by three guys in a couple of months. We believe completely in our team and our implementation and know it won’t be easy to duplicate what we’ve done, but if another quality team comes along and wants to copy us, there’s nothing we can do to stop them. Our plan is to win by being more innovative, more dedicated, faster and more customer-savvy than anyone else out there.”
6) Can we see the demo?
Everyone in Silicon Valley has an idea, and many of them are similar. Investors want to see the goods. We had one investor invite us out to a casual dinner, and when we didn’t have our laptops with us, we ended up taking him to our messy apartment full of pizza boxes and soda cans because he wanted to see the demo then and there. We got a follow-up meeting and an offer out of it, so it’s good to know that a working demo is more important than cleanliness. Basically, always assume they haven’t seen your online public demo and have that localhost version on your laptop ready to go.
7) Who are your competitors and how are you better/different?
Unless you just invented a teleportation system, research your competitors and be ready to answer what you can do better than everyone else out there. Don’t even try and avoid this question because about two days after any meeting, you’re going to receive an email asking you to detail how you’re better than 20 other companies the investor just Googled.
8) Who are your customers?
The trick to this question is to be specific. You’ll want to have examples of who is using, who will use, and who wants to use your product. At Startup School, Ann Winblad from Hummer Winblad said they will even contact companies you mention as potential customers during the due diligence period to verify their legitimacy as a customer.
9) How will you spread the word about your product?
This was my favorite question, because we could usually nail it. Investors understand the power of word of mouth marketing, and you win bonus points if you can demonstrate the ability to quickly spread the word. One of our biggest selling points was the fact that we have a decent blog, we belong to the 9rules network, and we were able to reach over 50,000 unique people in a matter of days when we released our public interface demo.
10) What will your market penetration be?
This was actually only asked of us once, but I had to add it to emphasize that you don’t need to spew out a bunch of BS to impress investors. We could have made up something you probably heard in an MBA class, but instead just said, “We honestly don’t know.â€ And that’s the truth, because I can’t even begin to guess what percentage of the available form building market we are going to get. The investor was a little bit shocked with the answer, but it definitely wasn’t a deal breaker.
If you’d like to learn more, I’d also recommend taking a look at the topics Brad Feld would like to see all entrepreneurs incorporate in their pitches.