One of the best ways to get the funding and guidance you need to scale your business is by pitching your product ideas to investors. And that means learning how to answer questions about what your target customers are looking for and how your business model works.
Before approaching an investor to pitch your business for funding, it’s important that you have a strong understanding of the underlying essence of your business. Prior to beginning the fundraising process, you’ll want to think about some possible questions investors might ask so that you can prepare answers accordingly.
Here are some common questions that investors frequently ask to get you started:
Who's your target customer?
A common question that comes up early in the development process is, "Who's your target customer?" One of the first things you'll want to know when developing a new product is who your target audience is. You should also have a good understanding of their demographics, needs, and pain points before starting to build anything. Once you've identified who they are and what they need from your product, it's time to consider how they use digital products in their everyday lives so that you can make sure what you're building will meet their needs.
Once this data has been collected, it can help guide decisions about pricing and features. In addition to helping inform pricing models for new products (or existing ones), knowing who your customers are can help with selling existing products by tapping into their interests and preferences for marketing purposes as well as providing valuable feedback on how much value each feature provides users with when used together in certain ways.
How is the product monetized?
Investors are looking for businesses that have viable business models. They're looking for businesses whose revenue streams are independent of each other (so if one type of revenue dries up due to market conditions or a change in consumer behavior, there will still be another option). They’re also looking for businesses that follow some fundamental rules:
- Be something people want/need enough times so you can cover your costs and return profits.
- Make sure whatever you sell has an inherent value proposition (something tangible) or has intangible benefits if possible. Otherwise, there won't be much incentive for people who need what you offer them!
How much money have you made so far?
One of the first things investors will want to know is how much money your company has made so far and how much you expect to make in the next few months. You should also be able to provide a revenue projection for the next 12 months.
If you’re not willing to share this information, investors will think that it’s probably because you don't want them knowing that you’re losing money or are only making enough money right now for your employees' salaries. The last thing investors want is a startup that can't pay them back if something goes wrong!
How many customers have you had to date?
Another important question that you’ll likely be asked is how many customers you’ve had before. This will help investors understand whether or not your company has an established customer base that continues to use your service or product.
Another way that investors look at this data is through measuring customer churn rate (the percentage of users who stop using a service). If you can demonstrate that you have a low customer churn rate, then that's another good sign!
What's the plan for company growth?
So you've built your digital product, but now you need to grow your business. What's the plan for company growth?
The first thing to consider is how exactly you plan on getting more customers. Do you have a list of potential leads that are likely to be interested in using your product? This can be something as simple as having a few friends and family members who will try it out because they trust your opinion or a more formal list like an email subscription list of people who have indicated interest in similar products.
Don't forget about making more money! While this may seem obvious, it's easy to overlook when planning for company growth because many founders tend to focus on customer acquisition instead of thinking about how they will make more money from their current customers once they start using the product.
Raising funding from investors for a new digital product is an exciting experience. It's also one that can be extremely rewarding for both the investor and the entrepreneur.
Preparing answers in advance to the questions above will serve as a great starting point to help you feel prepared when walking into a meeting with an investor who has the potential to fund your digital product.
If you need help with any aspect of the fundraising process, reach out to our team of audience and revenue experts at Camber Creative to get started. We can help you prepare fundraising materials and help you get the MVP version of your product ready to put in front of investors.
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