Investor questions for seed funding preparation

Investors, whether angels or venture capitalists, typically have a set of questions they ask when considering an investment in a Seed round. This article compiles 25 common questions based on a survey of recent investment rounds, aiming to prepare you for these queries and boost your confidence in fundraising discussions.

1) How much are you seeking to raise?

It's advisable to mention the amount stated in your Success Plan when answering this question. If you've already secured a significant portion of this funding, mentioning it could create a sense of urgency or fear of missing out (FOMO) among potential investors. For instance, if you're aiming for $1.5M and have secured half, clearly state these figures.

2)How did you arrive at your valuation cap?

Valuing early-stage companies is more art than science, lacking a straightforward logic. Nonetheless, investors often query this to understand your rationale, especially if they perceive the cap as high. Avoid mentioning advice from peers or industry benchmarks. Instead, mention commitments from other investors at this cap, or justify the cap based on your company’s growth metrics and market potential. Another approach is to discuss it in terms of dilution, such as needing $2M for the next milestone and wanting to limit equity dilution to a certain percentage.

3)Why is your fundraising goal set at the Success Plan amount?

Investors may question if the amount you're raising aligns with their investment criteria or if it's sufficient to reach your next significant milestone. Remember, investment targets are flexible, and investors may negotiate for more equity. Your response should reflect your strategy and the rationale behind your funding goal.

4)What questions do you have for us?

Asking questions is a crucial part of your discussions with investors. Inquire about their typical investment size, decision-making process, frequency of investments, and fund size. Tailor additional questions to your company's specific needs. This demonstrates your thoroughness and helps gauge if the investor aligns with your needs.

5)Who else has invested, and what is the status of your fundraising?

The way you discuss your current investors and fundraising status is critical. Confidently name any prominent investors or domain experts who have already invested. If you're early in the fundraising process or facing challenges, focus on conveying confidence and progress, such as upcoming meetings or interest from various firms. Remember to only count legally committed funds as part of your closed investments.

6)Are you seeking a lead investor, or do you already have one?

Many companies, especially those in seed rounds, do not have a designated lead investor. Emphasize your focus on securing investments from high-quality investors swiftly. Clarify any misunderstandings about the role of a lead investor in SAFE rounds and how it differs from priced rounds. Be aware that some investors may express interest conditionally, based on the closure of the rest of the round.

7)Can you share your financial projections?

For early-stage companies with modest monthly revenues and seeking relatively small investment amounts, detailed financial models are often unnecessary. If asked, you can discuss your key milestones and broad financial outlook. If you choose to create projections, they should be simple, focusing on major expense categories and revenue streams for the next 12 months.

8)Who are your previous investors?

Once an investment is secured, openly share the names of your investors as they serve as social proof of your company’s potential.

9)Who else are you in discussions with?

Keep discussions with potential investors confidential until commitments are made. Prematurely sharing this information can lead to unwanted collaboration or competition among investors.

10)May I view your capitalization table?

Share your cap table with serious and high-quality investors, especially if they are considering a substantial investment. Ensure you have a clear and professional representation of your ownership structure and previous funding.

11)What are you seeking in an investment partner?

Tailor your response based on the type of investor you're speaking with (angel, fund, etc.). Reflect on the specific support and expertise you desire from your investors, which may vary depending on your company’s stage and needs.

12)What is the market size for your product?

Prepare to discuss both the immediate market you're targeting and the potential market you could expand into over a 5-10 year period. This shows investors that you have a long-term vision and understand the scope of your market opportunity.

14)How do you plan to maintain a competitive edge?

Investors are interested in your strategy to stay ahead of competition, especially from both large corporations and other startups. Confidence and a well-thought-out plan are key in conveying your approach to building and maintaining a competitive advantage.

15)What is your company's moat?

Discuss your plans or strategies for creating a competitive moat – a unique advantage that is hard for competitors to replicate. This could involve product stickiness, network effects, ecosystem development, etc.

16)What questions have I not asked that you think are important?

This is an opportunity to highlight aspects of your business or strategy that you feel are particularly strong or were not covered in the investor's questions.

17)How do you differentiate from [specific competitor]?

Research your competitors thoroughly and be prepared to discuss how your company differs in terms of product, strategy, market approach, etc. Avoid disparaging competitors; instead, focus on your unique strengths and offerings.

18)Can you describe the competitive landscape?

Categorize your competitors and explain how they differ from your business. You can use a slide in your presentation or provide a verbal explanation, but ensure it's well thought out and aligns with your overall narrative.

19)What's your go-to-market strategy?

Share your short-term and long-term go-to-market strategies. Be realistic about your current methods and flexible about future approaches, acknowledging that strategies may evolve as your company grows.

20)How do you plan to allocate the funds you raise?

Investors want to understand how you'll use their money. Discuss your general spending plan, including potential hires and major investments. Emphasize your adaptability and prudent financial management.

21)What’s your exit strategy?

Discuss your long-term vision, whether it's an IPO, building a multi-billion-dollar company, or another exit path. Also, be aware of market-specific challenges that could affect exit opportunities.

22)Why are you a solo founder?

Confidently explain your rationale for being a solo founder or your openness to finding a co-founder. Assure investors of your capability to run the company independently, at least in the short term.

23)What are your anticipated future challenges?

Acknowledge the potential obstacles and risks your business might face. Discuss how you plan to address these challenges, demonstrating self-awareness and a proactive mindset.

24)What are your biggest current concerns?

Share the main issues or challenges you're currently focused on, showing that you have a deep understanding of your business and its priorities.

25)Can you outline your product roadmap for the short and long term?

Discuss the immediate and future plans for your product, emphasizing the rationale behind your current priorities and long-term vision.

Why do some customers decline your product?

Understanding and articulating why some customers might not choose your product is crucial. Avoid simplistic answers and, if applicable, discuss strategies for addressing these objections.

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