One of my concerns about the current entrepreneurial climate is the tremendous emphasis put on entering pitch contests, and with that, all the time and effort founders put into polishing their pitches to an eye blinding shine.
Not only is this a tremendous time sink for founders, more importantly, because pitch contests seldom allow time for Q & A – just one 3 minute pitch after another – founders don’t get the coaching and preparation for dealing with investor questions they need.
Yet during the multi-step process of securing an investment, entrepreneurs will spend more time answering questions from investors than they will doing their presentations. Whether it’s the partners meeting at a venture capital firm or a presentation to an angel group founders or just coffee with a VC associate, founders will find themselves on the firing line dealing with a barrage of questions from very smart, knowledge people who have a lot of experience interrogating entrepreneurs.
Here are ten steps you can take to prepare yourself to handle investor Q & A sessions:
- Know your audience – that’s the first rule of marketing communications. If you are fortunate enough to get to the partners meeting at a VC firm – the penultimate step to getting an offer sheet – or if you are just meeting an angel investor for the first time, study up on their background. Look for common points of interest. If you both happen to be sailor or skiers, that can really help break the ice during the often awkward time before the formal Q & A session starts.
- Understand the goal of the meeting – if the objective is a “meet and greet” you won’t want to go into a deep dive on your product. On the other hand if you find yourself before the due diligence committee of an angel group be prepared to handle the toughest technical questions. Often VCs or angel groups will bring in outside technical experts to question you – I know, I went through that process myself. Keep the depth and breath of your answers in accordance with the meeting objective.
- Don’t answer questions like a politician! – Almost nothing irritates investors more than founders answering with weasel words or with an answer they can give, but one that doesn’t address the question.
- If you don’t know the answer, say so – Fakers are soon found out. If you can’t answer a question, say so and if it’s appropriate say you’ll find the answer and get back via email or a phone call. Sometimes you can give a partial answer, such as if asked for a hard number like your sales projections three years out, you can answer with a range rather than a fixed number.
- Put together a set of likely questions and answers – If need be enlist some friends to help your team come up with objections to your pitch or really tough follow on questions. If you can anticipate the questions you can prepare a well thought out answers. A top ten question list should be sufficient. As you talk with more investors you can refine this list.
- But don’t give canned answers – Despite the tennis match back and forth of a Q & A session try to be relaxed and conversational. Giving a canned answer that was obviously memorized signals you don’t really understand what you are saying. Investors don’t invest in parrots.
- Anticipate questions with your pitch – The best way to answer a question is to provide the answer before the question can even be asked. Test your pitch against your top 10 questions and see if you can smoothly incorporate the answers into the deck – but don’t force the issue.
- If you’re unclear on the question, ask for clarification – Not every investor is a great communicator and not every question will be clear to you. Don’t be afraid to try to rephrase the question, such as “What I hear you asking is will we be willing to compete on price to get any deal or are we willing to walk away if we can’t get our price? Is that right?” Asking for clarification is the only time it’s ok to answer a question with a question!
- Rehearse, rehearse and rehearse – founders spend hours rehearsing their pitches, or at least they should. Spend some time with friends running a mock Q & A session and get their feedback on how you are coming across.
- Don’t be defensive – Investors can be very blunt. They can even come off as harsh in their questioning. Whatever you do, don’t get defensive, even if you feel you are being attacked. Be gracious. In fact some investors like to ask very rough questions in an abrasive manner just to see how the founder handles themself – they don’t really care about the answer.