Have a great business idea? Ready to make millions and millions of dollars? If yes, then chances are all you are missing is the initial capital required for your start up. Obtained all of the possible favours from friends and family? Still not enough money? Unless you come from a really wealthy family, odds are you are going to have to obtain the financial resources you need to start your business from an investor/venture capitalist. These people technically offer lower rates than most banks, only problem is that they may take control of a hefty percentage of your business. The whole whether you should obtain funding from an investor/venture capitalist is a different article in itself, this article deals with the 7 most common questions that a venture capitalist will ask you before they provide you with any money.
1. How will you spend my money? You must clearly outline that you have a financial plan in regards to how you plan on allocating the money to survive until you the profit point.
2. How much is your business worth? A lot of thought must go into this answer because you must prove why you feel you are worth what you claim. Money investment, current revenue, and potential revenue are usually good indicators of what a business is worth.
3. Why you? You must justify why you are the ideal person for the proposed venture. This is where your marketing skills really come into play. The most common approach is to provide extensive details on your background and accomplishments.
4. What are your goals? Before anyone will ever give you any money they want to ensure that your goals are aligned with the goals of the investor.
5. How did you come up with this? The investor wants to gain a grasp of your thought process and exactly how original the idea is.
6. How big is the market? The investor wants to know what the chances are of this venture becoming profitable, which usually depends on the current size of the market. There is nothing wrong with a market full of many competitors, as long as every company is currently experience exponentially growth and profitability. In some cases a market may be empty because there simply is no room for the product, not because you are the first mover.
7. What’s your skin in the game? Before the investor provides you with their own money they want some form of a commitment from you. Usually the investor looks to see how much of your own money you have put into the venture. Why should the investor provide money to the venture if you are not willing to?
These are the 7 most common questions that you must have answered in your mind before you even consider bringing forward a new business proposition to an investor/venture capitalist.
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One of the big mistakes entrepreneurs have been doing it all wrong is that they structure their business plans to raise funding in such a way to show how good their business is.
What they didn’t realize is that most VC will prefer to look at what’s in it for them rather than the imaginary figures that you have drafted.