Fundraising in 2022? These are the 9 questions you need to answer

Ahead of raising investment, there are a number of questions entrepreneurs always ask themselves: have I valued the company correctly? And is now the best time? But before even considering these questions, entrepreneurs must have answers to some key questions about their business plans ahead of fundraising in 2022.

Contrary to popular belief, investors are looking for wider indicators of growth beyond the obvious financial forecasts of revenue and profit. This is especially true for smaller companies and startups because they often lack reliable financial data compared to large, public companies.

The nine questions below will help you communicate the core drivers of your business - when you know the answers, you can then work on translating them into quantitative metrics. 

1. How do you plan to disrupt and innovate?

Founders need to have a clear understanding of the broken process, as well as a solid plan on how they will fix it. Disruptors will attract customers, partners, and even employees who believe in the mission. Without a clear mission, you’ll struggle to make a dent in the market. Converting your vision into a tangible industry-shaker requires innovation of the best kind - you must be able to clearly articulate your path to making your vision a reality.

2. Does your team include industry leaders - and are they do-ers who will deliver?

This simply comes down to: how good is your team? To impress investors when you’re starting out, you’ll need to put together a team of experienced market leaders. The team should include a range of skills from industry mavericks to fast-growth specialists. And if you’re still developing your product, an experienced and reliable Chief Technology Officer is a must. 

3. Do you have a product and is it ready to go? 

If the answer is yes, you should be able to provide a demonstration and evidence that it’s been validated by customers. To emphasise your position as disruptor and innovator, it’s also important to be able to explain what’s next for your product, beyond what the product is capable of right now.

4. If you don’t have a product ready to demo, how will you explain this to investors?
In this instance, VCs may consider the company too risky to invest in. Alternatively, they might offer investment but at a lower valuation due to higher risk on their side. To help offset this potential problem, you should arm yourself with an experienced product team and be able to explain how the product will disrupt the industry and evolve over time.

5. What is your addressable market and what market share do you plan to hold after 3 to 5 years?

Entrepreneurs must be able to articulate the size of their available market and how the first version of their product fits into this market. To help convince VCs that your forecasts are realistic, you’ll also need to have a solid understanding of how the market will grow alongside future developments of your product. 

6. Is your domestic market big enough to build a large enough business? 

Extending from the previous question, investors will be looking for opportunities that provide big growth opportunities, so the larger the target market, the better. From an investor perspective, if a startup claims they will be the dominating force in their market but in reality that market is small and has limited growth potential, the investors know their investment will be unlikely to provide substantial returns.

7. How soon do you plan to expand, and are you capable of expanding successfully?

Your company could expand in different ways: products, geographically, or audience - for example, moving from B2B to B2C. You might already have an idea of where you want to take your business in future, but you’ll need to prove to investors that you have the relevant expertise in areas such as sales, marketing or business development to successfully expand into new areas. 

8. How consistent are your financial figures?

If the numbers on your books are too small, many investors will see this as a low-growth opportunity and pass. Similarly, if your numbers are too big and lack credible supporting evidence, investors will also steer clear. Although VCs expect a certain amount of uncertainty from startups, you should be wary that investors could ask to link your company’s valuation on fluctuating forecasts.

9. Can you offer fair deal terms such as a liquidation preference clause? 

You should always aim for a balanced deal with your investors - it’s not them versus you. Your deal terms will be considered ‘fair’ if they’re typical for a company at a similar stage (Pre-Seed, Seed, Series A etc), and don’t discriminate based on the amount being invested. Everyone should be entitled to a liquidation preference clause because ultimately, it isn’t fair to make money on what others have lost. To attract more investors, you can aim to make the deal SEIS or EIS compatible, so your investors can benefit from the Government’s generous tax relief on their investment.

Translate your answers into metrics

When you’ve answered all nine questions, you can then aim to convert your qualitative answers into metrics. It’s normal for early-stage companies to lack solid quantitative data about revenue - but to raise confidence with prospective investors, you can present metrics about your team, product and market. With attractive metrics alongside your confident pitching, VCs will be able to offer investment based on a fair valuation.