Questions angel investors will ask entrepreneurs
By ATB Financial 4 January 2021 3 min read
As an entrepreneur who is entering the next stages in your business’ growth, you are probably considering a combination of alternative forms of financing to reach your next milestone. You might have even narrowed down your wide range of financing options to include the angel community.
Before we help you lock in your first angel, let’s back up for a second. As you may know, the angel community is made up of a group of investors that are planning to invest their own money into your business. With these investors putting a personal stake into your business, you must be ready to prove that both you and your business are worthwhile investments. To make your case, we have put together a couple of key questions commonly asked by angel investors.
Although only a brief overview of your product may be shared in your pitch, investors want to feel as confident as possible that you know what you’re doing. While you likely know what your product is, the underlying expertise may be challenged using questions such as:
- What does your business do?
- Can you demonstrate how your product or service works?
- Why do users care about your product or service?
When considering your product, investors might also want to know a little bit more about how far your idea has been developed and how you plan to continue growing your business. These process style questions might sound something like this:
- What is your next project milestone?
- What milestones have you completed thus far?
Not only will you need to understand how your business works, but you will also need to paint a clear picture as to how your offering fits into the big picture. Investors need to see more than a brilliant idea. They need to see the potential for profit.
Some guiding questions that will be helpful to consider are:
- What are the key differentiating factors between your product and your competitors?
- What is unique about your business?
- What problem does your business solve?
- Who are the people facing this problem? Where are they located? How do they currently solve this problem?
- How big is the potential market for your business?
- How much of the market can your business capture?
- How do you track changes in the marketplace?
- What will the market look like in a year with the introduction of your product or service?
Your team and their expertise
To navigate your clearly identified market, investors will often ask about the team that has helped get you where you are today. This is to assess where the strengths and weaknesses of your company might lie and if you have considered the gaps in your expertise that might hinder your business’ growth.
In addition to sharing who your team is, be prepared to answer:
- What relevant team experience does each team member possess?
- Why is this team uniquely prepared to achieve your business’ goals?
- How do you plan on building your team over the next year? Two years?
Despite your natural entrepreneur charisma, numbers tend to be equally if not more convincing to a potential investor. While some investors have a personal interest in seeing you succeed, many will want to know how promising the returns on their investments are.
To show you know what your investors are getting into, review these questions:
- What are your company’s projects for the next year? Two years?
- What are the assumptions underlying your projections?
- What future equity or debt financing will be necessary?
- What milestones will this round of financing help you achieve?
Know your risks and how to combat them
Let’s face it, risk is a major part of any entrepreneur’s journey. While you might not have all the answers, investors will want to know that you have considered the risks you might face and have a plan to combat the unknown.
- What kind of risks do you foresee in the next year? 5 years?
- How have you planned for risk?
- What kind of legal risks exist within your business model?
- Are there any product liability risks?
Although this is far from a complete list of questions you might be asked, when pitching your business for additional funding it is a good place to start. By considering these questions and tailoring your pitch accordingly, you will be well on your way to getting the funding for your business’ growth.