Seven most common questions asked by investorsNov 09, 2022
Investors considering supporting your crowdfunding campaign can and will ask all sorts of questions. Here are just seven of the common ones, which you need to be able to answer off the tip of your tongue.
- What will this investment enable the business to achieve?
It’s best to have a clear specific answer to this question. For example rather than “the investment will help us to grow” you might say “the investment will allow us to launch into the USA market by mid-summer in pursuit of our objective to triple annual revenues to £9m by 2025”.
- How much runway will this investment give you?
Here the investor wants to know how much time you have before you run out of money. The best answer will show that you won’t actually run out and that in due course the investment will ultimately drive revenues and profits before there’s any chance of the kitty running dry.
- How will I get a return on my investment?
Or put another way, ‘what’s in it for me’. It’s surprising the number of people who think that getting shares in your business is of itself reward enough. Rest assured, it isn’t.
Ultimately investors want to understand what your plans are to turn their £x investment into something that looks like £x plus a lot more. And giving an indication of timing is useful too.
There are multiple ways of providing a return. Examples include paying dividends, a future management buyback with a premium on the amount originally paid for the shares, and exit. This latter example is dealt with in the next question:
- What’s your exit strategy?
Here the assumption is that one day your business will be bought (acquired) by another business at a value much higher than what was originally invested. For example, an investor might hope that their £10,000 turns into £100,000 when the business gets acquired.
What the investor wants to know is your provisional timing (say 4-7 years), likely value increase multiple (in this example 10X) and also who potential acquirers might be and why they might be interested. A typical answer might be “We anticipate exit by trade sale in 4-7 years at a 10X return on investment. Potential acquirers might include Ali Barber who in the last 5 years have acquired several similar businesses to ours with an estimated combined market value of US$17B.”
- What happens if you don’t get this investment?
Quite simply they want to know if failure of the raise means it’s all over Rover. This isn’t always the case of course, so investors may want to understand what your Plan B is.
- What really makes your business different from your competition?
Please don’t say you have no competition; that’s more or less impossible. Customers/buyers of your products/services will always have a choice, do they buy from you, someone else, or save their money for another time. So in the first instance the investor wants to hear that you grasp this reality. They will also want to see that you really do understand your competitive landscape and can say why, in pragmatic and real terms, buyers would pick you over alternatives. Make this honest. And if your answer doesn’t even impress yourself, you might want to take another look at things.
- Why are you the best person to be running the company?
This can be a bit of a trick question. It’s not at all unusual for the person who first thought of the idea, developed the product, and then launched it to market is not necessarily the best person to lead the business into its next stages of growth and development. Equally it’s not out of the question that you do see yourself as the company’s Group CEO in due course but you’d need to show that you have what it takes to get there.
And if you do say something like, “I believe that as we grow we’ll need to hire a new CEO which will enable me to get on with what I really love doing, which is building out new products and services”, that can go down pretty well.
At ISQ we help our clients prepare for the myriad of questions they’re likely to face when seeking to raise equity investment. If you’re considering raising equity investment for your business, why not take this quick and easy Readiness Quiz. If that shows crowdfunding might be suitable, you’ll have the opportunity to book a call with us to discuss your ambitions.
Author: Richard Mojel, Commercial Director, ISQ Crowdfunding.