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10 Questions Angel Investors Will Ask You

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Published: 06Aug2006
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If you are looking to private investors for business funding, then you better be ready to answer some serious questions. The following ten questions will always be asked by savvy investors, so make sure you can rattle off these answers on demand.

1. What type of products or services will your company provide? Give them a quick summary of your company and its business model.

2. Why would someone use these products or services? When they ask you this, they are trying to find out if there is an actual need for your services. Is your company providing a solution to a problem? Or are you hoping it’s a solution to a problem that doesn’t really exist in the first place?

3. How much capital are you looking to raise? They’re really saying, why do you need this much money? Make sure you can back this up with accurate financial forecasts.

4. What kind of return can I expect and when? This is the one question that you can never answer with any certainty. You need to be honest with them right off the bat. If you give figures that are too high and you don’t reach your goals, you will lose credibility. However, aim too low and you won’t attract many investors. It’s a very thin line to walk. A savvy investor will look way beyond just financial figures anyway. They generally will invest in the better overall package rather than a mediocre operation with only high financial projections.

5. How much profit will your company make? This is a relatively easy question to answer, right. Only if you’re an existing company with a steady customer base. Profit = unit price times quantity sold minus expenses. This is very simple math to calculate. It has no fancy formulas in it and is virtually foolproof. That is, only if the figures injected in the formula are true. Most novice entrepreneurs over estimate the units sold portion of this formula and under estimate expenses. The end result is over inflated profits. When these are not met, someone will have some explaining to do. When preparing financial statements, under estimate sales and over estimate expenses. This will give you more accurate profit numbers. It will lead to a lot less headaches later.

6. How much money do you have invested in your venture? This is a question that can be embarrassing to answer if you don’t have any money invested in your own project. Having money at stake in your venture shows that you truly believe that it will be successful. Even if it is only a small amount, having your own money at stake will definitely be a positive factor.

7. Do you have experience in this field? It’s imperative to show that you have experience in the field of your venture. If you can show that you have experience and prior success in your industry, then you will be ahead of most entrepreneurs. Example: If you’ve owned a landscaping company for 20 years, it would not be easy to raise money to start a tech company.

8. What are the long term goals of the company? You need to have a well thought out plan as to where the company will be in 5, 10 and even 15 years. Investors will be looking for companies that will be able to grow to become large, sometimes even nationally known companies. They will not invest in “mom and pop stores”.

9. Who is your competition? When asked this question, you should be able to recognize your current competitors, as well as any competition your company could encounter as it grows larger.

10. How will you compete in the marketplace? You must devise a way to attract customers. This sounds easy, but it can be a daunting task for a start up company to achieve. Your investors will need to know your plans for achieving this goal. If you’re not a marketing genius, it’s not a bad idea to get a third party to help you with this part of your business. No customers = No profit = No company

David Rapp is an expert when it comes to raising business capital from private "angel" investors. He has successfully funded companies through "angel" investors and runs http://www.capitalhelpers.com , a site dedicated to helping entrepreneurs raise capital through private investors.

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