I have been around the startup circuit locally and I must say, it is averagely vibrant as opposed to the US. A startup circuit refers to a series of competition for aspiring startup founders. Mostly organized by incubators or private companies, startup competition is a springboard to the next big thing in apps (application software) or technology. And what i look forward when joining startup competitions is the panel of angel investors. Its enlightening to listen to their validations since they know their stuff even if they berate your hopes and dreams in your startup idea. Here’s a list of questions from an angel investor, Ben Yoskovitz, that I find would encapsulate what other angel investors would want to know.
- Why are you doing this? What motivates you? I have to understand why entrepreneurs care about what they’re doing, because it feels like a lot of people are out there starting companies for the wrong reasons or with no real reason in mind. I’ve gotta believe that they’re committed and in it for the long, painful haul.
- How have you validated that there’s a need for what you’re doing? I believe in the Lean process, and want to understand if entrepreneurs are applying it in some capacity. Have they even spoken to a user / customer / potential customer yet? Are entrepreneurs selling vision alone (big vision is important!) or are they selling big vision + a structured plan for trying to get there?
- What keeps you up at night? I’ve gotta understand what entrepreneurs are scared about, and most importantly what they’re top priorities are right now. Are they focused on the right things or meandering around? Whenever I ask this question, entrepreneurs laugh. A few days ago, the response was, “Everything.” I know what it’s like to be a founder. I know how hard it is, so part of asking this is to break the ice and have a really human conversation about the challenges.
- What are the next steps? No plan survives first contact with the market, but entrepreneurs need a plan just the same. I like to focus on the immediate next steps (say the next 3-6 months after financing), to understand how an entrepreneur is prioritizing tasks and challenges. “Running like crazy,” isn’t the right answer (even if that’s partially the reality of what happens once you raise capital). I’m looking for a well-thought out, somewhat reasonable/logical strategy.
- Who are you hiring next? In most cases, because I’m investing early, people are looking to hire technical talent. But occasionally people have told me they’re going to immediately hire in marketing or sales (which is usually a red flag in an early-stage business). I’m also curious about how many people they’re looking to hire, which gives me an idea of whether or not they understand how to budget properly (since humans are always the biggest cost).
- Where do you see the biggest risks? This is similar to the question about what keeps them up at night; I’m trying to get a sense of how much the entrepreneurs understand their businesses and markets. I’m also looking to understand how entrepreneurs think about tackling big problems. The follow up question is simple: What are you doing to address the biggest risk?
- Who is the competition? I haven’t narrowed my focus down to invest in particular areas, which means I hear a broad range of pitches. I might not know the markets well initially. But the entrepreneurs need to, and I want to hear about the competition, and learn from the entrepreneurs. I get very nervous when an entrepreneur dismisses the competition, but at the same time, I’m already assuming there’s a ton and that won’t stop me from investing. Entrepreneurs shouldn’t be concerned about discussing competition–but they do need to prove (at least verbally!) that they’ve found a differentiator that matters. I’m always looking for an unfair advantage or at minimum, the possibility of an unfair advantage. That’s definitely worth digging in on.
- What’s traction look like? Assuming they’ve got a product in the market, I ask about traction. I know traction will be minimal, since I’m investing very early, but it’s still important to ask. Given my interest in analytics, I like to understand what entrepreneurs are focused on when it comes to traction. Do they even understand what it means? Do they understand the key metrics that really matter?
Side note: I find decks are very useful for digging in on traction. Most entrepreneurs will share some numbers in their decks — # of signups, # of users, etc. and very often these are vanity metrics. They open up the door to real questions on traction, which allows me to dig in very quickly.
- Why are you raising X dollars? I’m always interested in why entrepreneurs are raising the amounts they’re raising. I’ve shared my opinion on this in the past (e.g. The $250,000 Funding Trap), but I like to hear the logic from entrepreneurs. I still find that most entrepreneurs don’t leave themselves enough runway; they’re raising for ~12 months, which in reality, once they start spending money, is probably closer to 9-10 months. That’s scary for me as an early investor, who might be asked to pony up again pretty quickly, without seeing enough progress.
- How can I help? I don’t invest huge dollars (although to me it’s pretty damn significant!), which means I’ve gotta provide value beyond the capital. I also want to provide value beyond the money, so I ask entrepreneurs how they think I can help. Entrepreneurs should do research on investors before speaking with them, so they have an answer to this type of question. It also helps prepare entrepreneurs for what individual investors are interested in (specific verticals, etc.) Don’t go into a pitch / investor meeting blind, you won’t succeed.