Startup pitch meetings are pretty predictable. You walk into a venture fund’s conference room or Zoom room (if they’re progressive), pitch the partners, offer to answer their questions, maybe ask them a bland question or two, and then leave the meeting to await a response.
Here’s the thing: asking a VC a couple of easy questions at the end of a pitch doesn’t get you any closer to receiving a term sheet. In fact, the biggest mistake you can make at the end of a pitch meeting is not asking VC’s the following question:
So, is this the type of company you’d look to fund? Does my company meet the criteria you’re looking for in a new investment? - Steve Barsh
These types of questions are a part of what’s called a trial close. What’s a trial close? It’s the act of asking your customer for their business and finding out what objections they have to the sale when you do so.
A practical example of a trial close is going to buy a new car. When you get to the dealership, your salesperson will ask you a ton of questions like:
What car do you own right now?
What car are you thinking of buying?
What about a new car matters most to you—is it safety, comfort, or maybe speed?
Do you have the financing you need to purchase this car?
Perhaps the most important question they’ll ask you is “What do I need to do to get you to drive off the lot as the owner of this car right now today?” Why is that the most important question they’ll ask? Because that’s the question they’ll use to find out your objections and close your sale.
As an entrepreneur pitching investors, you’re just like the car salesperson. Except, instead of selling a car to a parent or an elder, you’re selling equity in your company to investors.
When you ask investors if your company fits the profile of the type of startup they’re looking to fund, you will find out their objections to backing you. And, unfortunately, most of the VC’s you meet with will have objections to investing in your business.
Sometimes, investors will tell you that your company “isn’t in their wheelhouse” or “isn’t a fit for their fund.” If someone has this objection, it’s best to thank them for their time and ask if they can make any introductions to funds they think would like to learn about what you’re doing.
More often than not, when a VC tells you why they don’t want to invest, they’ll say something like “You’re a little too early for us right now.” This is a classic VC response, and if you’ve raised funding before, you’ve probably heard it hundreds of times.
Receiving this type of objection creates an opportunity for you to better understand the specific milestones this VC wants you to hit before funding you. Your response to this objection should look something like this:
“Great, I appreciate your feedback. What metrics do you need to see to invest in my company? What type of customers and revenue do we need to have? Do you need to see us doing $100K a month or over $2M in ARR (or insert whatever metric is relevant for your stage)? Do you need to see an improved CAC:LTV ratio? What’s the number you need to see to invest in my company?” - Steve Barsh
The great thing about this type of response is that some investors will come back to you and say “Game on. If you come back to me six months from now and show me that kind of traction, I’ll make an investment.” If you keep executing and hitting your growth goals, you now know an investor will write you a check down the road. Plus, you’ll know that the investors who don’t respond this way aren’t actually interested in your business.
While you now know the most important question to ask at the end of a pitch meeting, here are some other questions you should consider asking potential investors:
Where are you within your fund’s lifecycle? (source)
What can you tell me about your firm’s business model and investors? (source)
For the last few investments you (partner) or the firm did, can you tell me about the dynamics? (source)
Is there any area where you think you/your firm adds unique or disproportionate value? (source)
What price is it OK to sell at? (source)
When and if will you write us another, second check if we need one? (source)
What if we fail? (source)