Before we jump in, many of you have asked what my writing process looks like. Lucky for you, my wife snapped this illuminating picture of me.
Apparently my writing process looks like Wednesday, 10:17 PM, surrounded by a collection of empty Amazon boxes, sugar free cough drops and Miller Lites.
I’m basically J. D. Salinger if he liked Net Dollar Retention and the occasional tall boy.
And yes, I use a ThinkPad. Why? Based on my highly scientific research, not all CFOs who use a MacBook go to jail, but all CFOs who went to jail were using a MacBook.
I’ve been a part of over $900M in startup fundraises. And from the thousands of hours preparing pitch decks and fielding data requests, I’ve identified a predictable line of questioning you’ll get from VCs when you ask for capital.
These questions are designed to validate their investment thesis in your space, while getting comfortable with underwriting your company’s specific execution risk.
But their questions don’t come at you straight. You see, I’ve learned that VCs speak in code. There’s a question, and then there’s the real question.
I’ll take you through the most common questions VCs ask when you fundraise, and translate what they are really asking.
I’ve bucketed 37 timeless questions into the following categories:
Financial profile
Go to Market and Revenue Model
Buyer Profile, Budget, and Education
Product
Pricing and Packaging
Partnerships
Competition
Competitive Differentiators
Headwinds / Tailwinds
And it will follow the format below:
The Question Asked
The “Real” Question
Financial Profile
How many more years do you think you can grow at more than 100% for?
What type of ambitions do you have? Do you have a shot at achieving the legendary triple - triple - double - double - double pattern?
What’s your company’s North Star metric?
How do you judge success? What’s the most important lever in my forecasting model?
What’s in your Cost of Goods Sold?
Which components of your COGS scale linearly with revenue? Please show me there’s some leverage in this model…
Do you think you can get to $100M in run rate revenue within your core market?
Could you IPO even if you never built another product?
What’s your target cash flow breakeven date?
How many more fundraising rounds will we need after this, and how much should I estimate getting diluted by future investors?
How many people do you plan to hire next year? What roles are you most focused on bringing aboard?
Are you stacking bodies? How much more expensive is this model about to get after I give you money?
Go to Market and Revenue Model
What is your core monetization model?
Can you explain to me how the company makes money?
How much does it cost you to acquire a customer?
Do you have command of your unit economics?
How much of your demand is inbound vs outbound?
Can we put this shit on autopilot? Do leads just show up at your door?
How much of your sales come from new business vs existing business?
Are we going to be fighting an uphill battle, always scrambling to find new customers? Are you living solely off of new additions?
When you expand a customer are they buying more licenses? More products? Or increasing usage?
Will we need to continue building (and introducing) new products to expand customer wallet share? Or do you just become part of their core infrastructure and they need to keep using more of you to be successful (e.g., AWS, Snowflake)?
Buyer Profile, Budget, and Education
What’s your ICP (Ideal Customer Profile)?
Does the person you are selling to have a budget? Are they a decision maker who can pull the trigger and make a purchasing decision?
How do you segment your customers?
Are you actually selling across all segments, or are you only an SMB play?
What sectors are you selling into the most?
Are you a tech firm who’s just selling to your other tech founder buddies? Where are we in the maturity cycle in terms of non tech companies wanting your product?
Are you going after an existing market? Or are you creating a new one?
Is there an existing budget for what you are selling? How much greenfield opportunity is there?
How much education is required to get your customers to understand your product?
Does the value prop punch them in the nose? Is it obvious? Or will there be long ass sales cycles where we have to teach them what you do and why it’s important?
Product
What’s your product’s core job to be done?
I don’t want to sound stupid, but you are the fifth pitch I’ve heard today. What do you do again?
What’s the “aha” moment in your product?
Once again, I’ve heard like 20 pitches this week, can you make the value prop more tangible for me?
Is this a point solution?
I invest in platforms, so don’t say point solution.
What did customers do before you guys?
Is this a Vitamin or a Painkiller?
How do you think about product depth vs breadth?
Are you trying to be everyone’s everything? Or trying to be technically the best at one core thing?
How do you define active user? How many users do you have on a daily / monthly basis?
What’s the “quantity” for me to use for my price x quantity equation? How penetrated are you into that market?
Pricing and Packaging
How do you price your product?
What’s your average selling price for my minion analysts to incorporate?
Do you offer a free trial? Can users self serve?
Is there an on ramp to trying your product? Or will we need to throw expensive sales bodies at this?
Can you explain your funnel from free to paid? What’s the trigger to convert to paid?
How can I be sure you won’t have a bazillion free users and no paid?
What’s the pushback when a customer doesn’t sign up?
Is the reason you get rejected fixable?
Partnerships
Which of your partnerships are technical in nature?
Is there underlying platform risk on another company that I can’t see?
Which of your partnerships are Go to Market focused in nature?
If Atlassian = Jay-Z and AWS = P-Diddy, which big dogs have co-signed you?
What’s your philosophy on buy vs build?
Wow, so you really are going to try to build that next thing on your roadmap yourself… (scribbling “technical risk” in notebook”)
Competition
What’s keeping [Big Corporate Competitor X] from dropping $100 million in your area to compete?
Why won’t Google or Amazon or Facebook wake up one day and decide to eat your lunch? Why doesn’t your product end up as a feature within a larger incumbent?
Do users ever use both you and a competitor?
Does multihoming exist in this industry? Do I have to adjust my market share capture assumption?
Competitive Differentiators
What are your competitive moats?
Do you have hard-to-replicate advantages that lead to durable revenue growth?
What’s your “earned secret”?
What’s your secret sauce? Seriously, what do you have that others don’t?
Headwinds / Tailwinds
If this doesn’t work out, why would that be the case?
Should I be worried about government regulation, spending habit changes, or a looming zombie apocalypse?
If customers buy your product, what product do they no longer need? Who goes away?
Does someone else need to fail for you to succeed?
What trends are you taking advantage of?
Are you in the right place at the right time?
What inning of maturity is this market in?
Once again, are you in the right place at the right time?
Own the questions, tell your story
In the world of startup fundraising, understanding the real questions behind the seemingly straightforward inquiries from venture capitalists can make all the difference. By decoding their code, you gain valuable insights into their investment thesis and concerns about your company's potential.
Although they questions may be leading, prodding, or totally off base, it’s your story to tell. Steer it in the right direction and control the narrative. No matter the question, there are always avenues to work what you want them to know into the conversation. Pick your spots and go for it.
Afterall, they’re VCs, and probably wicked smaht, but don’t know what they don’t know about your company.
Sometimes you have to lead the horse to water, even when the horse is the one asking the questions (and his father owns the mineral rights to said watering hole).
Armed with this knowledge, you can navigate the fundraising process with confidence, addressing their concerns head-on and positioning your startup for in the best light.
Best of luck.
