My main focus is to minimise risk on an investment. Less risk and a higher return make for a better investment. So, when I meet a potential investee I want you, as the entrepreneur, to help me understand why your company isn’t a risky proposition and where the demand for the product or service is.
I generally ask the same 10 questions in some form or other, so be ready to answer them…
The 10 questions that a potential investor will ask you about your company.
What’s great about your product or service? Is it unique? What need is it meeting in the market?
I invariably start the conversation on the product or service. Ideally there’s a demo to show me in the first meeting as I like to experience something right off the bat. Tern PLC doesn’t invest pre-product therefore it’s a warning signal if I can’t see the product or service in action.
I will ask about USPs and how a product or service meets a need in the market. I’ll also ask about product security, If you can’t answer these questions well and fully, then chances of a second meeting are poor.
What is the size of your Total Addressable Market?
You need to show how much market share you can potentially capture. If you can talk in terms of age, geographics, psychographics, pain points, drivers then that’s really helpful to paint a picture. Be realistic, do your research and clearly show how you’ve come to the size calculation.
What are barriers to entry?
Can competitors replicate what you are doing or replicate your idea? You need to demonstrate that it’s not easy to compete with you directly. Being first to market with aggressive marketing as your ally is a defensible strategy if you make sure you grow your customer base quickly and establish brand loyalty, but it’s not an easy one. I’m much more satisfied if your company has intellectual property and patents established or pending.
Who are your competitors?
Be ready to talk about your direct competition and how you compare. If you have no direct competition then who are the companies that satisfy the same customer need? Make sure you have an answer and have done your research, before an investor tells you about one during your pitch. Tern specialises in IoT investments, so though we don’t have encyclopedic knowledge of the market, we can certainly talk about the landscape including major players and new entrants.
What keeps you up at night?
I think this is a great question to discover how as an entrepreneur you think and prioritise. There’s no right or wrong answer here and often entrepreneurs will laugh and ask, ‘where do I start’. Sometimes the answer given will play right into Tern’s sweet spot of experience, and right away I think we can help.
Where do you see the biggest risks? And how are you addressing them?
This can often be a similar answer to what keeps you up at night. I’m trying to understand how you tackles big problems and also if you really understand the risk landscape.
What’s traction look like?
Be honest here. Show when your company will make money or more money. I’m looking for a “hockey stick” graph of growth and to work with a company that with the right support will scale and add value to the investment quickly. If you’re unsure of what traction is then find out.
How is your management team uniquely positioned to achieve your plan?
You need to demonstrate that you have assembled a management team that can achieve your plan and create value in the company or at least you have the bones of it. I acknowledge that to get from A to B in a plan sometimes requires the investment that you’re seeking and that’s okay, but tell me. If you don’t then I’ll assume you’ve not thoroughly thought through the execution of your plan.
What help are you looking for? Is it simply financial?
Tern isn’t about simply investing money. We are a committed and hands on partner, invariably taking an active positon on the Board of our investments. We hope we make this clear on our website and marketing collateral. However, not all investors are the same, some really only want to inject capital and turn up for a quarterly update. Ensure you marry up your requirements with the potential investor’s engagement model.
What are the potential exit strategies?
This can be a tough question for some entrepreneurs who don’t want to think about potentially selling the business they’re intent on building. Investors want a return on their money. Typically, this can be anything from 3 to 10 years. At some point, you will either have to sell the business or at the very least bring in another round of investment, which will see your shareholding reduce (but increase in value).
In the end, an investor wants to be assured that you are willing to eventually sell your company, so they can cash out, and that you have a credible, realistic and timely exit strategy to do so, or are open to it.
Interested in speaking to Tern? Then get in contact here https://www.ternplc.com/contact