This post first appeared here as an article on Proseed Magazine and I send it to people who approach me asking for feedback, mentoring and/or an investment. I have updated it a bit since then, so best to read this version.
I changed the title from “Questions from a potential investor” to “Questions from a potential investor – (mentor/partner)” because sometimes people approach me who do not want me to invest. I may be able to help them anyway, and I feel that if I am going to give my time, asking those who approach me to invest the time to pre-brief me is a good way to check if they take my time seriously.
I enjoy hearing about business ideas but prefer to to know a little bit about the stage people are at before meeting.
I am usually willing to give up to an hour of mentoring/feedback to people with business ideas – at a time/place convenient to me – provided I am not involved in anything competitive. This is not a promise. Sometimes people annoy me so much with their approach that I decide not to meet them at all. Sometimes I encourage people to attend events I am going to be at anyway, so that we get a few minutes to chat. Often 5 minutes is enough for me to tell whether I can be of any use. The questions I ask are ones that all professional investors will ask so it is not a waste of time to answer my questions.
I do not promise to find time for a call, meet, get involved in feedback after I get this information. The answers help me decide if I want to do that. I don’t want to focus time and energy on things that are not going to happen. Obviously if things have changed “Hey Richard – 6 months ago you told us we needed a working product, a CTO and at least 5 paying clients’ – you were right. The good news is we’ve done all of that and more” then I’ll be glad to take another look.
To make the most of the experience it is good for those who want to go ahead to be properly prepared and to have done the “easy stuff” before we meet. Sometimes people want to chat to me before they have done “the basics”. If everything I suggest in this article has already been done, it is very positive. Because the starting positions people approaching me are in vary so much please be aware of the fact that some of what I suggest below may not fit your situation. If this is the case, just skip or move on to questions that are relevant to you.
Clients and potential clients People often ask me what I think about their idea and I always tell them ‘it doesn’t matter what I think nearly as much as what clients and potential clients think’, and and I ask them what they have done to get this information from clients and potential clients. If I am told “we have interviewed 10 directors of companies who we want to sell to and they all say that they are very interested in purchasing at the kind of prices we want to charge” it not only is impressive it also tells me that the person I am talking to is well organised and has the self confidence to get out there and talk to people.
Long term value of clients/repeat revenue. This can be hard to estimate for a startup, but you have to do it. If you sell post cards to tourists, the chances of repeat business are almost zero. If you sell premium (expensive) dog food to wealthy people who you can persuade that your dog food is the one their dog prefers, the repeat revenue may be very high. If you sell post cards to shops that sell them to tourists, you have a good chance of repeat revenue if they find your cards easy to sell and make a good margin on them. If you sell jet engines to Airbus, and each one comes with a high price service contract… it’s obvious there will be repeat revenue.
Current situation –
How are you doing? How are you making money? If your business is already underway please describe how you got to where you are now, what the key processes are (how you get clients, deliver your product or service and make money), and what you expect from me. Please send me basic facts, your trading history: costs, revenues and profits, number of employees, and ownership. A simple spreadsheet showing past and future costs is often very useful.
A tough area for many entrepreneurs is the issue of founder salaries. It is very important to address this. If you have been working for free in your spare time and now post investment are planning to go full time then you may not know how much to suggest. A rule of thumb is that until you are making a profit, approximately 50% of what you were making on a salary might be reasonable unless you are a developer. Investors won’t like the idea of you becoming wealthy on the back of your take home pay. Results related bonuses, and salaries that rise as the company goes through agreed milestones make a lot of sense.
If you have not started yet, describe your planned business model and how you are going to make money and how far you have got already.
I always worry if I see the EU funding logos that this may mean there is no business model. If the business model is going to change in the future please describe it.
Competition – who are you competing against in your home market and internatinally/ (and who is dangerous and how are or can you be better than them). If you haven’t searched and checked who is doing this in foreign countries, do it now. Don’t show up to a meeting before you have tried to buy what you are thinking of selling on mfg.com Ebay.com Amazon.com and will a simple google search. You may think you are the first person to have thought of renting out dogs You are wrong. Years ago I posted this Now Will Bunker who made his fortune in a dating site has invested in Borrow My Doggy which charges both the dog owner and borrower for the transaction and unsurprisingly is making money.
Strategic plan. What do you see you way forward in terms not just of geographical spread but also product service offerings.
End game. Are you going to exit? If so how, when, who are your potential buyers ?
Ownership/shareholders/Team: key team members etc. who apart from you is part of your set up?
Gaps what do you lack/what are your weaknesses/challenges? What else do you need that you don’t have today, and what are you doing to address them? As Gary Vaynerchuk says, self awareness is a vital business skill.
Why? What problems are you solving, what pain point are you addressing. Client satisfaction, what is it that makes a) your users b) people who send you money really appreciate what you do.
Barriers to entry if you start turning into a high profit business. what is to stop others entering the market?
Dangers and threats. how could it “all go wrong”?
My role. How can I help you ? What is the main reason you approached me?