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Your answers to investor questions raised during the fundraising process can make or break your round.
Mark Bugas
Your answers to investor questions raised during the fundraising process can make or break your round. Answers can instill confidence or raise doubts, and one bad answer can derail the entire conversation. Since investors look to quickly eliminate deals from contention, they use heuristics which aren't always rationale but which founders need to be aware of. One pattern we’ve noticed is it’s often less about the substance of the answer, and more about how it’s delivered. Here are some of the other lessons we’ve learned over the years.
This is something we are taught time and time again, but in my experience very few people actually listen. Ever hear the beginning of a question and find that your mind is whirring trying to come up with the right answer? That’s a sign that you’re not actively listening.
Listen to the entirety of the question before formulating your response. Reframe the question or the final part of the question and pose it back to the investor to show you’ve listened and ensure you fully understand. This can buy you time and increase comprehension.
When it comes to strategic questions, if you don't know the answer, it's okay to admit it. In fact, you probably stand out more if you admit it. It’s refreshing to hear a founder say they don’t know the exact answer to a difficult question. As an investor, we often ask questions to see how the founder is thinking about the problem, without expecting them to have solved everything.
Of course, don’t just say “I don’t know”. Give context around why it’s a difficult question to answer, how you’ve gone about trying to answer it, what evidence you have gathered, and what the next steps are to answering it. Note: this tactic doesn’t apply to questions on metrics or KPIs, which founders should have succinct, clear answers to.
Our good friend, Kaben Clauson, a repeat founder who previously went through YC, takes it a step further, advocating for radical authenticity. Kaben points out that if you don’t tell them what the monster is, they’ll come up with their own (and, worse, they’ll assume you didn’t recognize the monster in your midst!). If you try to make up an answer to their difficult question, you’ll dig yourself into a hole. If you acknowledge you don’t have all the answers, explain why their question keeps you up at night, and ask for their opinion, you’ll gain their trust. Check out our post on radical authenticity for more on this topic directly from Kaben.
Some questions might feel challenging or confrontational. It’s part of an investor’s job to challenge you, and many investors try to make founders uncomfortable to crack their confidence.
Remember, investors are stress testing you just as much as they are the business model, go-to-market strategy, etc. Stay calm, and answer with confidence, using facts and your expertise as backstops. In most cases, investors don’t know your niche as well as you do. Lean on that, and project confidence, even if you’re acknowledging a challenge or admitting you don’t know the answer to a question.
Answer concisely in 20 seconds or less and you will stand out. Most people get nervous and ramble on, qualifying their answer with all sorts of extraneous details, which weakens their answer. While you should provide complete answers, avoid going off on tangents. Stay on topic and be concise.
Back up your responses with data whenever possible. This adds credibility to your answers and demonstrates thoroughness.
As a corollary to this rule, know your KPIs down pat. If an investor has a question about retention, revenue growth, margins, etc. and you’re not able to answer, those are the types of non-answers that reflect poorly on a founder. It makes it look like you’re not results-oriented. Investors want to meet founders obsessed with every aspect of their business.
Don’t take an objection, question, or concern at face value. I first learned this in sales: when a prospect has an objection, it often stems from an underlying concern that isn’t immediately visible. For example, a buyer might push back on a 12-month contract and ask for month-to-month. That same objection can stem from the desire for flexibility, a lack of belief in the results your software can provide, or cashflow constraints. If you don’t ask questions to get at the core of the problem, you might concede and offer a trial thinking they lack belief in your product and need proof, when in reality you could’ve signed a 12-month contract with quarterly payments to address the underlying cashflow issue. The same goes for investors; their questions can signal areas of concern, but unless you dig deeper, you won’t know the driving force behind a question.
I’m an obsessive notetaker, which has served me well in sales, fundraising, and life in general. Founders should take notes during or immediately following investor meetings. At least jot down the questions you’re asked. You can also record meetings, but ask the investor if it’s ok beforehand. You can be transparent in saying the purpose of the recording is so you can refer back to topics covered, questions, and follow up items. They’ll appreciate your diligence, especially if you send a killer follow up.
If you’re not good at taking notes while listening, try writing down one phrase or word that will remind you of each question. After the call, review the phrases and write out the questions that were asked. Over time, you’ll notice patterns. Create an FAQ document that compiles these recurring Q&A themes.
Group similar questions together in your FAQ document, such as those about market size, competition, business model, etc. This will help you quickly locate and review answers before meetings.
Categorizing questions will also help you understand the biggest areas of concern or uncertainty. If you’re receiving the same objection repeatedly, consider how to mitigate that concern and address it head on before they have a chance to raise it. If you’re receiving the same question over and over, consider clarifying how you discuss that aspect of the business.
After calls, ask team members to provide feedback on your responses. Were there areas where clarity was needed? Where can you be more persuasive? If you don’t have a team member present, and have recorded the call, listen back to your responses to difficult questions to see how you performed and identify what can be improved. Listening to a recording of yourself is painful, but one of the quickest ways to improve.
As you answer questions on calls and by email, you’ll refine those answers and find ways of communicating that are more impactful. Go back to your FAQ and add V2s and V3s of your answers so you can continuously improve your answers to common investor questions while maintaining a historical record (sometimes my V3 answer sounds great in the moment at 1 am but isn’t clear the next morning when I compare it to V2).
Regularly update your FAQ document to reflect the most recent and relevant data used to back up key questions and concerns consistently raised.
This FAQ also provides a fascinating snapshot across rounds, as you’re able to see how key concerns and questions played out. This provides valuable ammo in future rounds.
This is another opportunity to stand out. Far too many people forego the ‘thank you’ note, forgetting how powerful it can be. The best follow ups include:
- A genuine message of thanks, ideally referencing particularly interesting insights or topics covered by the investor
- A recap of your answers to the most important questions asked
- A summary of next steps and timebound actions to be completed by both sides
Investor Q&A is an opportunity to showcase your depth of knowledge, passion, and vision. It’s particularly helpful in establishing and reinforcing founder-market fit. More on that here:
By approaching these sessions with tact and having a systematic method for refining your responses, you'll be better equipped to navigate the fundraising journey and leave a lasting impression.
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