10 questions to answer before meeting investors

By Rock Health Mentor Jae Chung who has raised over $100 million between his last startup, Celltrion (IPO) and current one, goBalto

The process of raising capital is a thoroughly thought provoking (and tiring) experience. Through it you will have hopefully gained some insight into how viable your opportunity is. These were a few questions I sought to have answered, before meeting investors.

1. Whatʼs your pitch?
You should be able to spit this out in one to two sentences. Iʼve always liked Geoffrey Mooreʼs approach to building the pitch. Just ﬁll in the blanks:

For (target customers)
Who are dissatisﬁed with (current way of doing things)
Our solution is (a new solution)
That provides (key problem solving capability)
Unlike (the product alternative)
We have (key product features for your solution)

* Remember to ALWAYS PITCH THE PROBLEM, NOT THE SOLUTION. For a NSFW explanation, check out Dave McClureʼs post. Brutal but truth.

2. What customer pain point are you addressing? How have you validated the pain point? Have you gone out of the building?
Clearly articulate the pain point that drives your business. Is your product a nice to have or must have? For a cardiac patient, folic acid is probably a “should-have” product. Itʼs good for her and will improve her health. But a pacemaker is a must have. This isnʼt to say that nice to haves canʼt be successful (think Porsche and Starbucks), theyʼre just harder. Also, honestly ask yourself what tangible proof you can show that the pain exists and more importantly, that your solution addresses the pain? Sign ups to your preview page? Initial growth in sales? Companies willing to offer public testimonials?

3. Whereʼs the real money?
Focus on companyʼs near-term addressable market makes you think through where the real potential revenues lay. “What the rush to focus on that large elephant of a customer, when you still havenʼt even cracked the rabbits?” (Check out Mark Susterʼs post on how to segregate your customer base. You should initially focus on deers.) With time against you, itʼs not about being greedy, but disciplined. Time is short.

4. What are the unit economics?
Itʼs not ﬁnancial statements or projections that tell the story of how much a startup will make. Itʼs the life time value per customer less the cost to acquire the customer. This question shows whether you have thought through the basic economics of your business model.

5. What are the explanatory events of your forecast?
Most startups show a hockey stick curve. Itʼs not the forecast per se, but what the numbers reveal to be the key underlying key drivers and levers.

6. Why canʼt you grow faster?
Letʼs say you successfully close that $10 million Series B round. Whatʼs your rate limiting factor from being all that you can be? Hiring great sales people in a certain demographic?

7. What are the accelerating effects?
Itʼs easy to grow 200% in your ﬁrst year or two. How about year 3, 4 or 5? Reid Hoffman is known for asking whether there are accelerating effects where growth begets more growth. For Facebook and LinkedIn, the community itself constantly recruits new users. 37 Signals uses word of mouth about their ease of use.

8. Whatʼs your secret sauce? (aka “barrier to entry”)
Branding? Proprietary tech? Game changing feature? If somebody were to copy your tech, how would you win?

9. Whatʼs your go-to-market strategy?
Itʼs got to be more than simple word-of-mouth, social media or advertising. These things take a long time. What are the small wins you can do in the near term and build upon it to gain market share? Built in network effects?

10.Who are your competitors?
If the market you are going after is valuable, there are always competitors. If you have none, there might not be a market. And sometimes, the biggest competitor might not even be another company, but rather the existing processes your customer currently uses to address their pain point.

Hopefully, you will have thought through these questions, and even better, validated them in some way in the “real world”. In conclusion even after getting the answers to all the questions above, I believe the biggest predictor of a startupʼs success is the team. IMHO. And after that, the team. No business plan survives ﬁrst contact with the customer. The successful companies are those where the team can pivot and adjust based on new market data. Happy Hunting!