Most Common Investor Questions.
We will go over some of the most common questions that investors who are being pitched on funds have. The importance of the initial pitch to your investor cannot be overstated. How you answer the questions that they’ll ask you could very well determine if they allocate any of their capital to you. I would strongly recommend preparing for these potential questions when pitching, as well as any others that you can think of. Be confident, thorough, and specific. The vaguer an answer that you give, the more likely the investor will become cautious.
Question #1: How do you invest your money?
Investors are going to want to know exactly where your focus is, and if you want any shot at working with them, they had better be getting your undivided attention. What I mean by that is, how can you possibly inspire confidence in potential LPs if you’re putting all your money elsewhere and worried about getting those returns? Skybridge Capital's Anthony Scaramucci stated that 85% of his wealth is invested in his funds. He does this to convey that he is all in on his strategy and his funds, something he says is a must, or "otherwise it wouldn’t be fair to (his) LPs."
Question #2: What about your personal life?
You can almost always bank on the investor wanting to get to know you on a personal level. These are not superficial relationships. These are long-term, deep bonds where a high level of trust is crucial for success. That’s why I’d recommend doing experiential activities with your investors to allow them to get to know you. If you’re able to connect with these individuals, the better off you’ll be. Don’t be afraid to be open with them and manifest who you genuinely are. If you’re nervous about that, then this probably isn’t the business for you.
Question #3: Who is your biggest competitor? What strengths do you have over them?
This is a question that I think many fund managers don’t anticipate. You want to be extremely familiar with the opposition around you and learn from them. I’ve heard buyers say, "Out of them all, which one might you invest in?" This shows them that you have an eye fixed on abilities and a focus on what works. However, how you articulate your advantages over your opponents may be the most important factor. If you can correctly discover weaknesses in opposing finances and exhibit the advantages you bring to the table, you’ll be in good shape.
Question #4: Under what circumstances would the investment fail?
Fund managers want to avoid this subject as if it were an exploding volcano. Even though there are a few methods to that, this is something that wishes to be addressed. If you point out how the fund could fail and then display what provisions you’ve taken to prevent such an occurrence, the investors’ confidence in you will grow. Remember that bumps in the road are inevitable and out of your control, but how you respond is entirely in your own hands.
Question #5: Who ultimately decides whether to allocate a portion of the investment? Who has the final say?
By the time you pitch, there should be a sound foundation and hierarchy within your corporation. Who is in charge? What happens if most of the partners disagree on an action? These are issues that, at the genesis of your operation, may not seem all that relevant, but with time they may come to pass. So, it's far better to be prepared than to be sorry. Set clear obstacles and establish a chain of command.Preparation! Preparation, Preparation. Preparation is what places us beforehand of the game, and I invite all of you to make investments in your time and sources into taking the essential steps earlier to be geared up for what lies ahead. Not anything is extra pleasurable than when an investor asks you a question and you could answer their question with an appendix slide.