7 Questions to Ask a Startup Fundraising Mentor
Here are some the most important questions to ask your mentor to help you keep your startup fundraising experience on track:
1. What are the different types of funding options available to me?
The most popular types of startup funding include friends and family, angel investors, venture capitalists, startup accelerators, and crowdfunding campaigns. However, these are by no means the only fundraising options available to startup founders. A mentor can help you evaluate your startup’s unique circumstances and determine which type of startup funding is right for you.
2. How can I find the right investor for my startup?
The first step is to research potential investors who might be a good fit for your startup. Look for investors who have experience investing in your industry and can offer the specific resources your startup needs.
Once you have identified potential investors, reach out to them through networking events, email, or social media to gauge their interest in your startup.
If you get a meeting with them, focus your pitch on your startup’s unique value proposition, growth potential, and financial projections, and be prepared to answer questions about your team, market opportunity, and competition.
A startup fundraising mentor can help you identify the best investors for your startup and give you advice as you develop your pitch deck.
3. How can I build relationships with investors if I don’t have a network?
Fundraising can seem daunting if you’re a new startup founder who hasn’t yet built a network of investors. The first step to begin forming relationships with investors is to get introductions. Investors will be much more receptive if you’ve been introduced to them through someone they already know and trust. Reach out to other startup founders, or any contacts you have who you know are well-connected in your industry, and find out if they know any VCs or angel investors who are looking for new prospects.
A mentor can help you work on your outreach strategy, as well as show you how to fundraise for a startup using tactics like FOMO to generate interest from more investors.
4. What should I look for in an investor?
There are several key qualities to look for in every potential investor.
- Investors with whom you choose to work should have a wealth of fundraising experience in your industry. If they have experience as an investor themselves, even better.
- Investors should be open-minded and passionate about helping you develop your business. This is particularly important in the early stages of your startup while your business strategy is still evolving.
- Investors should be reliable enough to provide the support that your startup needs to grow. They should have a strong track record of supporting their portfolio and following through on their commitments.
- Finally, don’t forget to account for personal compatibility. You should be able to work well with your investors and share a common vision for the future of your company.
With help from a fundraising mentor, you can learn to recognize the differences between an investor who will be a great fit for your startup’s specific needs and one who isn’t compatible.
5. What is an investor looking for when I pitch?
Investors evaluate startup pitches based on several key factors, including the team's experience and track record, and the startup’s market opportunity, traction, growth potential, product-market fit, and existing social validation. However, investors will prioritize different factors at different startup fundraising stages.
Investors will typically look at your founding team's experience as an indicator of your ability to execute your vision. This makes your team one of the most critical elements of your startup that investors will evaluate.
Your startup’s market opportunity, traction, and evidence of product-market fit show investors that you have identified a significant market need and found your ideal customers. Furthermore, social proof in the form of customer testimonials and impressive user engagement metrics can help you persuade investors.
There are a lot of important factors to juggle when you’re preparing your investor pitch. A startup fundraising mentor can use their personal experience to help you hone your pitch and ensure you don’t leave out any crucial elements.
6. How should I determine my valuation?
Determining your startup’s valuation can be a challenging task, since most startups have little or no income and may not yet even have a functioning product. One approach you can use to arrive at a valuation for your startup is to compare it to similar companies in your industry. Most investors will be willing to accept your valuation if you can back it up by pointing to a recent, similar valuation in your market. You can also use the cost required to create another business just like yours from scratch to determine your startup’s valuation — this is called the “cost-to-duplicate” method.
It’s very difficult to decide on an accurate valuation for a startup, especially if you have little prior experience doing so. An experienced mentor can help you determine your startup’s valuation so you can enter the process of negotiating with investors fully prepared.
7. What questions will a VC ask me?
After the pitch, startup founders can expect a range of questions from investors about their business plan, team, and vision. Investors are most likely to ask about each of your team members’ specific backgrounds and roles at the startup, as well as more detailed questions about the company’s traction, growth potential, and funding needs. They may also ask about your financial projections or burn rate. In general, investors will be looking to assess the viability of your startup and its likelihood to produce exponential returns on their investments.
A mentor with fundraising experience can help you practice fielding your industry’s most common investor questions until you have your answers down to a science.
Did you know? Many of Silicon Valley’s most successful startups have received funding from a group called the PayPal Mafia — however, this “mafia” isn’t as sinister as its name implies. The PayPal Mafia is actually a small alliance of former PayPal figures, including Elon Musk, Peter Thiel, and David Sacks, who now frequently invest together. This group’s significant impact on the Silicon Valley startup scene goes to show that funding and mentorship from top players in your industry can constitute a best-case scenario for your startup’s long-term prospects.