Venture capital has been a popular way of funding small businesses, especially start-ups since the early 1990s. Most small business owners today rely on venture capital from private investors when executing business expansion, because it is usually not easy for small business to get loans from large financial institutions sufficient to facilitate expansion. One of the most pondered topic for these small business owners is that, what questions should I expect from the private investors. Here is a list of a few most asked questions and the reasons why investors care particularly about them.
How much and what percentage of stakes are you offering?
This is something an investor needs to know from the beginning. In the business world, everything has a price tag. The incumbent investor needs to know the numbers before making his/her judgement on the deal. Usually, the amount of investment required should be the amount of money needed to fuel your expansion. However, how much share should you offer? That depends on the valuation of your business, and is discussed in another article.
What’s your revenue so far/last year?
As discussed before, venture capitalists put emphasize on existing revenue, whether large or small. This is because before they have an idea of how an average consumer receives the product or service you offer, an revenue number is a good indicator of market perception. It is hard to make an investor open their pocket for a product that yet to make any sales, unless the investor is particularly familiar with this industry and the market.
Do you have patents on this? How do you prevent large companies from stealing your idea?
This should also be a question that innovative small business owners should ask themselves. Unless in some very extreme cases that you are in a completely undeveloped niche market, there are large companies, sometimes monopoly in your industry. You might have come up with a potentially revolutionary idea, but the large companies may also use the same idea and put it to the market much faster than you can imagine. Therefore, if you were to present you unique idea to potential investors, make sure you acquire patents on it.
There are surely more questions to expect, but being well prepared for these questions would at least make you stand on a solid basis presenting your business to angel investors. If you are located in one of the major cities in Canada, check out www.pitchyourbusiness.ca for venture capitalists meeting events.
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