Getting funding for your business is highly competitive, so it is crucial to be prepared to answer questions your potential investor may have. There are thousands of visionary entrepreneurs seeking investors’ money just like you.
Black founders already face a significant hurdle in attracting funding. While funding still drastically lags compared to non-Black startups, in 2020, Black founders saw an increase in investor funding. Black founders raised $400 million in the first six months of 2020, according to Crunchbase. And in 2021, Black founders outpaced full-year funding totals for both 2020 and 2019, when they raised $1 billion and $1.4 billion, respectively, Inc. reported.
Before reaching out to investors for funding, be prepared for the questions they may ask. Here are five things investors want to know before giving you their money.
1) Why will anyone pay for your product/service? You’re convinced your idea will be a brilliant and viable business venture, but you will have to convince the investor why consumers need what you have to offer.
The investor wants to know what is your value proposition. “A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product,” according to Investopedia.
2) How well does your service/product work? Compared to similar products already on the market, how does yours better solve a problem or fill a consumer need? Investors are looking for innovation.
3) Who is your competition? Saying there is “no competition” is not an option. There is always competition, whether direct or indirect competition. Indirect competition is products or services that offer substitutes and alternatives.
You must illustrate to investors how you’re different from others and how this gives you a better chance of surviving the competition.
4) How big is the market opportunity? You should know right away how much of a demand there is for the product or service that your business offers?
Investors are interested in the size of market demand because it influences how much money they can possibly make by investing in your business.
You will need to present investors with solid figures; they don’t just want to hear that the market is “massive.”
“Determining the market size is critical. It tells you and your partners, team, and investors how much potential business is really out there. It helps calculate how much value there really is for your venture. This is critical to know, even if you never plan to raise a dime in outside capital,” according to Forbes.
5) What is your business model? Your business model will tell investors how you will create, deliver and extract value from the market. This is your “core profit-making plan which defines the products or services it will sell, its target market, and any expected costs,” according to Investopedia. In it, you need to spell out what product or service a company will sell, how you plan to market it, what your expenses will be and how you will make a profit.