10 Frequently Asked Questions by Venture Capital Investors Smart ...

I had worked in various venture capital firms for over 10 years, during those years, I had interviewed more than 200 entrepreneurs, and here are some questions we often ask entrepreneurs during the interviews.

1.??? Have you put in your own money?

By having your own personal interest tied in your business, it shows your serious commitment, and is often regarded positively by investors.

I have seen entrepreneurs able to show me how much investment they had put in progressively; many were working on full-time job and invested their salary into the business, because of their strong belief in their idea.

2.??? Do you need the money to survive?

This is an interesting point to make. I was running 2 online marketing businesses at one stage; I was looking for seed capital initially but unsuccessfully.

I pushed ahead and put in my own savings into the business and built the business up. I was then approached by the same investors a year later and offered to take 30% equity in the business of which I rejected.

If your business is proven, you don?t need take the first offer that comes to you, it?s cool to have capital for expansion, but you don?t need to sell it cheap.

Conversely, if you are in desperate situation to raise capital for the sake to keep it afloat, then take a step back and re-evaluate your situation.

Can you change your business? Can you break your business into different divisions? Do you have hidden assets such as your IP or customer contracts that can be incorporated into your business?

This is because investors often walk-away from these deals -? you would do the same if you are in the same situation.

3.??? Clear roadmap in how you will use the money

Too many entrepreneurs have vague ideas about what they can utilize the newly raised capital.

This is often the 1^st question asked by investors ?What?s the purpose of capital?? Many just replied working capital without explaining them in details.

I met an entrepreneur who showed me a detailed roadmap ? week 1 to week 20 of how he can use the capital. He had all the candidates interviewed already, and needs capital to hire new talents to expand his business.

The businesses expanded rapidly as he already knows what he can do with the capital and simply follow the plan.

4.??? Have you looked at other options?

Everybody has options; you don?t approach a venture capital investor as the last resort.

Have you considered debt financing? Do you have personal investments or cash that can be accessed?

Venture capital may not be the best option to find capital for many businesses. For instance, some family businesses are not suitable for venture capital investors to participate.

VCs will also ask you if you have looked at other options such as grants, government programs, subsidies, loans and personal investments. You may also approached other venture capital investors who are willing to provide you with better terms.

5.??? I don?t have revenue yet, but lots of pending customers

Venture capital firms understand that it takes time to book the first revenue. It took me 6 months before I landed my first customer!

What investors want to see is a process in place or pending customers. How do you quantify ?pending customers??

This can be membership, this can be trial customer, this could be contracts in place (waiting for product to be ready).

The investors will consider all these favorably as this means there will be a minimal waiting time for you to see the first revenue; that you have done all the ground-works already.

6.??? How do you manage your database?

Demonstrate to potential investors you have an established networks, these can be business relationships, sales & marketing partners, legal consultants, accountants or mentors.

A useful way is to use CRM or other tools and show how you maintain databases clearly and how you can utilize them. Good businesses often have good databases in place, and save significant time in searching for information.

Venture capital firms like to invest in good business ideas, but more importantly, they like to invest in structured businesses that have good practice in place which is more critical than ideas.

7.??? Do you have good financial knowledge

Many entrepreneurs lack basic financial knowledge, and unable to manage the cash-flow cycles.

Businesses can suffer gravely at early stage if they do not manage receivables effectively, and entrepreneurs must understand these financial risks.

For example, we were considering to invest into a boutique designer at one stage, he had A-list customers including many celebrities; and have contracts in place with major department stores.

The turning point was actually these contracts; big stores pay them 90 to 120 days after they sell the goods at their stores. However, they need the capital to produce the goods, so the whole turn-around time can be as long as 12 months.

The business owner is a great designer with creative ideas, but lacks sufficient financial knowledge and could not sort out the cash-flow management issue until it was too late.

8.??? What?s your financial situation?

One question we often ask entrepreneurs is their personal financial situation. We had met many entrepreneurs who are in financial distress personally, which we would prefer to walk away from the deals.

If you have a messy financial situation, the chance is that you would have to devote a lot of time in managing personal issues, hence less time devoted to grow your business.

We often ask entrepreneurs if they are investors themselves, we also ask about their status such as if they have a big mortgage in place, any personal issues with their spouse and also their family situation.

We met one entrepreneur, who is very intelligent and competent, but he was going through divorce at the time, and the business collapsed within 12 months because of the personal issues.

9.??? Do you really know your competitors?

One common mistake for entrepreneurs is under-estimating their competitors.

Good entrepreneurs can illustrate competitors? analysis in details, they would have carried out detailed research already; sometimes as their customers for long term, and able to provide detailed strategies in how to compete with their competitors.

Some entrepreneurs simply talk down their competitors, with arguments like ?our products are way much better quality? or ?they can?t beat us in the price?.

These are not the types of responses investors want to hear. Can you identify your competitors? weaknesses, maybe they have missed out a key segment, maybe you have a geographical advantage or maybe you have an innovative process in place that can improve the profit margin.

10. Have you resolved the key-man risk?

Many entrepreneurs do not address the ?key man? risk at early stage. You run the business 24/7, you don?t take enough rests and your health suffers; and the business fails.

I understand this risk, I had set up numerous businesses, I set up a business magazine in the 90s, and I was the Editor and the Writer; and I was working 15 hours a day easily. I felt ill for 2 weeks and the magazine lost its key advertisers as it missed the deadline.

Investors would ask you what happens when you are sick or if you are on vacation? You should have a contingency plan when these events happen (which will happen), and convince investors that business can run as usual if when you are away.

Useful Resources

You may find the following resources useful:

Traditional Business Investors Guide

Venture Capital is not just about technology companies; many investment firms do participate in traditional businesses. This database contains venture capital firms that support ideas in the retail, industrial, manufacturing, commercial services and other traditional businesses.

Please Click Here For More Information

Global Green Investors Guide

This is our database providing information on various venture capital and private equity firms that participate in the cleantech & renewable energy opportunities.

Please Click Here For More Information

UK Capital Providers Guide

Our UK Capital Providers Guide is a useful guide assisting companies or companies seeking to raise capital from UK investment institutions including ? Venture Capital, Private Equity, Debt Financiers, PIPE or angel investors. In addition, we have also included a large number of corporate advisory firms that can assist you in terms of capital raising, corporate financing and investor relations from UK.

Please Click Here For More Information

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