CHAPTER SEVEN: Part D – It is a known fact that angel investors have their own criteria for deciding on what businesses to invest in. So, you should be more than prepared by the time you are privileged to meet one. This will help you give an impressive account of yourself as well as your business when presenting your idea and plans to the investor.
Usually, entrepreneurs who present their business ideas to an angel for the first time have their ideas rejected. This happens because they are usually not well prepared for the questions asked by angels.
Although angels usually arrange a meeting and give you the chance to pitch your business (you will learn how to do this brilliantly later in this chapter), others won’t take this route; they will bombard you with questions, instead.
So expect to answer different type of questions from angel investors. While there are no ways you can predict the exact questions to expect from an angel (except you meet another entrepreneur who was once quizzed by the same angel), there are some basic questions that almost all angels ask; maybe in different ways, though.
And it is a good idea to anticipate these questions and formulate brilliant answers to them before they are asked. Here are ten of the most likely questions an angel investor would ask you:
10 Questions Angel Investors are Likely to Ask You and How to Answer them
1. What is your business all about?
This question, usually the first to be asked, may come in different words or tone. While some investors can will it directly, others will simply ask you to say something about yourself and your business.
This question is one of the most important questions you will be asked, as your answer will determine whether the investor wants to continue listening or not. So, you should prepare a powerful answer that is both intriguing and entertaining.
You must be able to present your personal and company information, plans, and credentials in a fast, succinct, and clear manner. Also, you must make sure that your answers are presented in such a way that the investor can easily remember pertinent data about your business.
2. What makes your products / services stand out?
Angel investors want to know the unique selling points and competitive edge that your products or services have. In your answer, you should present solid and reliable examples. You will do even better by mentioning your major competitors and highlighting how your offers will outperform theirs in the market.
One bad way of answering this question is to say there are no competitors because your business idea is “just too unique.” This statement has two implications: it means that either you have not done your market research well enough to find out your competitors, or no one is trying out your business idea because it isn’t profitable.
Also, in your answer, you need to show why other companies would find it hard to copy your ideas and why they would rather acquire your company instead. This will make the angel investor more interested and confident in your business.
3. How much capital do you need from me, and how will you use it?
You must have calculated the exact amount you need to start your business, the amount you already have, and the amount you will need from the investor. You should also be able to back this up with a clear, accurate, and feasible financial plan for your business, which will explain how you came up with the requested amount.
Every angel investor is impressed by a comprehensive financial research. So, do your homework well in this regard before meeting the investor. Also, you must try to give practical and detailed information on how you will utilize the capital once you get the check.
4. What’s your target market, and how do you expect prospects to respond?
Before meeting investors, try to meet some of your potential customers. Ask them questions regarding how they would accept your proposed product or service. You will need their responses as reference when presenting your idea to an investor.
You must be able to define your target market. Give important details such as where they are located, their spending habits, and so on (refer to your business plan for more on this). Having ready answers to these questions will make an angel investor feel more comfortable with funding your business.
5. What is your marketing strategy?
This is one of the most challenging questions from angels. You should be able to present your planned methods for promoting your products or services. Also, you must describe how each method will boost profitability of your company and give you the competitive edge.
Promoting a new business usually requires huge costs, and angels usually fear losing their money on marketing alone. So, it is highly recommended that you disclose your marketing budget as included in your financial plan.
6. For how long will you use the invested funds?
You need to be very careful when answering this question. The investor wants feasible answers with precise calculations to support any claim you make. So, you must be able to present the time frame needed for the cash flow to appear. This may be a hypothetical period, but it’s important.
A new business usually requires at least one year or so to start making profits. So, keep this in mind so that you won’t set a trap for yourself by giving an unrealistic answer.
7. How much will I get from the company and the ROI?
Investors want to know their stake in your business. They want concrete figures regarding their share of the business as well as their portion of the ROI. So, be prepared to give these figures. Also, you must be prepared for negotiation.
Usually, angel investors expect to get high ROIs because of the huge investment risk they will take by supporting your business. You should anticipate this and come up with fair values that will be pleasing to them.
Angel investors want to know about not only you, but other founders or team players. They also want to know their backgrounds to be sure that the right individuals will run your business.
In your answer, you must talk about each member of your team and why he or she is indispensable to the concept. Also, don’t forget to state the number of people needed to complete the team. This will give the investor a clear picture of your company’s workforce and give them the impression that you can grow your team over time.
9. How much are you investing in this business?
Your answer to this question can make or mar your chances of getting an investor’s check. A good answer is to mention how much you have been able to pull together from your personal savings, family and friends, and other sources. This will send signals that you are confident in your business idea and are ready to risk your own money on it.
Telling an investor that you have no money to invest will raise a red flag. It will send signals that you are unserious and are trying to take other people for a ride by gambling with their money while smartly keeping yours. This explains why you should try to pull together some funds from your end, no matter how little.
All investors understand that business is risky. Investment always comes with the possibility that the business may fail. With this in mind, investors want to know how prepared you are for the worst. They want to know your strategic plan.
So, you should be able to present strategic plans that can provide protection for investors. This can be in the form of secured position on assets and equity subordination.
Investors know they are taking huge risks by investing in your business. So, you should be able to convince them that you can grow their investment by growing your business.
You can only convince investors if you know how to deal with them. The best way to learn this is to rehearse your speeches, presentations, and answers so that you will appear confident and knowledgeable. Every word that comes out of your mouth must be powerful enough to leave a good impression on the investor’s mind.
Angel investors do not limit their questions to the ones mentioned above. So, you must be prepared to answer questions on every aspect of your business, market, and industry.
The only key to providing mind-blowing answers is to study your business plans very well. But bear in mind that your answers will be impressive only if your business plan is comprehensive and well-prepared.
- Go to Chapter Seven Part E: How to Pitch Angel Investors Successfully
- Go Back to Chapter Six: Raising Seed Capital from Family and Friends
- Go Back to Introduction and Table of Content
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