The first step toward seeing your idea become a business – apart from the obvious preparation of a business plan and determining how much seed capital you’ll need – is preparing to answer the most common questions venture capitalists and angel investors will ask.
1. Who is your competition and what’s the barrier-to-entry?
Be prepared to understand not just your competition but the overall marketplace for potential competitors. Is your idea sustainable against a wave of new entrants? What’s your plan for pushing the business forward?
2. How much do you want to raise, and why?
It’s important to have a clear explanation for how much money you are looking for and why you need it. Angel investors and venture capitalists are realists. They understand you may not have $350,000 saved up to quit your day job and launch a new business.
3. How far will your money get you?
Shiny Ads’ Roy Pereira raised a seed round of capital in late 2010 of $500,000. “We used those funds to accelerate growth and I always knew we’d get to a point where that money would run out; it’s what the life of a start-up is all about.” In other words, he knew exactly how long he’d have before he’d have to go back to the venture capital market to raise more money. Be realistic about how long you can get by on your initial capital raise.
4. How will you handle scaling?
A good idea will only get you so far. Your idea must be able to achieve what venture capitalists call “scalability,” meaning the ability of your underlying business model to accommodate and allow for future growth. Do you have a plan to see this through?
5. Who are you? And who’s on your team?
It sounds glib, but just who do you think you are, anyway? Do you have a background in the business you are trying to enter? If not, what about the team you’re prepared to surround yourself with? Have you found people with complementary skill sets to offset your own weaknesses?