An early-stage company founder’s first pitch meeting with investors is often like dating. Both parties are sizing each other up. Do they match their online persona? Is this someone I can see myself partnering with for years and years? Is this Surry Hills cafe a little cliche for a first date?
Meeting an investor can be daunting for founders, and especially first-time founders. But during the third pitch session at _SOUTHSTART, the audience witnessed first-time meetings between three investors and three founders and was let in on a little secret: early-stage meetings often follow a standard set of questions and thematics.
To ensure you’re in the know too, we’ll highlight all three investors' common questions and explain their rationale below.
On the investor side, you’ll hear from Rachael Neumann from Flying Fox, Stew Glynn from TEN13, Kirsten Bernhardt from Artesian, and Cheryl Mack from Aussie Angels, who quizzed the investors following each session. Cheryl focused not only on the questions they asked but concentrated on the why.
Why do you wake up every day and choose to solve this problem?
Every investor asked this question. Rachel Neumann led with it in her meeting with James Moschou, who's building an API design platform. Rachel's rationale was to understand two things. Firstly, if there is a burning passion behind the solution. Secondly, evidence of the founder's experience.
So why does Rachel start with this? She wants to understand the passion behind the problem. Where does it come from, and is it sustainable? Does the founder have a drive that can be sustained for over 10 years of ups and downs? Then the latter, does the founder have the experience that suggests they are the person to solve this problem? Has the founder experienced this problem previously, are they well placed on building it themselves and then capturing the value they create?
What is the problem? No, seriously, what are you solving?
This is an obvious one. Of course, the investor will ask about the problem your product solves. However, we saw some of the founders struggle to offer a concise and effective explanation. Generally, this was due to communicating a technical problem to a non-technical counterpart, but all investors were relentless in trying to understand the problem and solution fully.
I want them to have this like maniacal obsession over this problem, Rachel Neumann said.
Kirsten attempted to sum up the problem and product herself, then let herself be corrected or with a more specific answer. It was a polite way of letting Gabriella, the co-founder of ShowMe Exchange, explain her start-up and build on Kirsten’s self-researched thesis.
Stew, from TEN13, let the founder know he had previously invested in a similar business and was comfortable in the space and pushed Elliott to get deep into the problem and product immediately.
Rachel's approached it differently again. She applied the 5 Why's to push James deeper and deeper into the problem, his platform and who it was built for.
Each investor spent as much time as needed to understand the problem and product fully. For founders, your first meeting with a potential investor could be only 30 minutes, so nailing that explanation of your problem in a format that can be understood is really valuable.
How big is this market?
For every investor in the pitch tent, size matters, in terms of both market size and potential opportunity. The investors all framed this question to fit the founder and their product accordingly. Gabrielle, whose start-up connects homeowners with tradespeople through virtual sessions to ask questions, is clearly entering a massive market of homeowners. However, Kristian focused on the challenges of scaling out of local markets, as local tradespeople traditionally are only relevant to their local markets. Kristian used her experience with multi-sided marketplaces to challenge Gabrielle's business model and strategy.
This question was more nuanced for software products like James’ API product Criteria. We saw Rachel continue to push James for more information on who would be the end user of the product, as it wasn’t initially clear. We also saw Rachel use her current portfolio of investments, which she would intimately understand, as examples when assessing product market fit.
Having a really firm understanding of the market size is essential for founders. Additionally, knowing exactly who the product would be sold to and a rough pricing strategy allowed investors to get excited.
Does the founder understand the risks?
Early-stage start-ups are inherently risky. Therefore, investors are primed to be cautious with newly met founders. In this section, towards the end of the pitch, after the investor had a fair understanding of the founder and their product. Each investor would probe the founder, asking about competitors, regulatory risk and business model strategy. This was the perfect opportunity for the founders to demonstrate confidence under pressure and create some FOMO. Here the investors are trying to understand how the founder thinks about their product in the market. The founders who deeply understood the problem and their solution shined in this space and spoke with authority.
Advice for founders.
The first date is just a chance to impress and get a second date. Founders need to create an element of excitement around their idea business potential. The audience in the Pitch tent saw investors asking the same questions meeting after meeting, expressed differently but utilising the same rationale.
All three of them asked, Why are you doing this? Or how did you get here? What's your background? All three of them asked about scalability, all three of them touched on the competition said Cheryl Mack.
For founders meeting investors for the first time, expect to get asked about your passion, the problem you’re solving and how. Be prepared to talk about the market size of the opportunity and where your solution will fit in.
Finally, take a bearish perspective on your start-up and pull it apart. What are the biggest challenges you’re likely to face, and how have you already thought about solving them?
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