Questions you have to answer correctly to get funding for your startup | Hacker News Reader

Questions you have to answer correctly to get funding for your startup

whoapi.com

> "Why don’t you sell your house/company/whatever if you believe that much in your product?"

How is believing in your product an excuse for not trying to minimise risk.

Especially if you know that most startups fail, there's no good reason not to hedge your bets when it comes to stuff that's at the base of the Maslow triangle.

edit: logic error :)

"I'm trying to minimise my risk by hedging my bets" sounds like a relatively straightforward answer.

Add a comment about how venture capital usually comes with advise and connections, and it's a perfect explanation.

One more thing: selling a house or other property is not the same as selling a company, which (probably) requires a certain amount of time to maintain in order to generate value. The time that affects the founder's commitment to the startup he is trying to fund.

"How is believing in your product an excuse for not trying to minimise risk. Especially if you know that most startups fail, there's no good reason not to hedge your bets."

Would you agree that this would not be a good answer even if it is the reason?

Some gentler ways to answer:

- Keeping my house gives me a feeling of security so I can devote all time and energy to the startup.

- My heavily mortgaged house is not nearly enough to fund the startup.

- Keeping my house is not unreasonable when I am already investing an enormous amount of my time and energy and my life into this.

- I might indeed sell my house but I don't think I'll need to. I feel that this startup is a great investment, and I think investors will agree.

Anyone got a better response?

How about: the security provided by an unconditional roof over my head and food on the table allows me to use my abilities in problem-solving and creativity, according to Maslow's hierarchy. [1]

[1] http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

One more thing: Not a founder, but people say startups have incredible highs and equally bad lows. Would you really want the possibility of loosing everything playing on your mind during one of those lows? Huge chance that it'll become a self fulfilling prophecy and ultimately hurt the company in that case.

Bear in mind that these guys are from Croatia and there's a big cultural difference. Being willing to put a very large chunk of your own money in (by risking your house etc) is likely part of showing how committed/serious you are (i.e. nobody wants to lose their house). Hence it may be seen as a legitimate question. If you imagine it from that mindset, then anyone who makes excuses about 'security/risk/stress/etc' is either not serious or doesn't really believe in what they're trying to sell you (I mean 'you the investor').

I'm not trying to suggest this is right or wrong, simply that the cultural expectations are different.

I know I've read a post that summarised these types of differences but I can't recall where (I think it was either an Estonian or Slovenian startup).

Sounds like a good reason to not go with those guys from Croatia

I think this notion that you have to suck up to investors and tailor what you do to jump through their arbitrary hoops is toxic.

Focus on making your business so awesome that investors see value and can't resist the opportunity. Everything else is hand-waving and cargo-cult thinking.

Unfortunately, there is a lot of cargo-culting, on both sides of the table (entrepreneurs and investors), regardless of the culture. Although the precise form may differ: in SV it's recently been "a billion dollar company" with hoodies and other Social Network copycatting (as Paul Carr nicely described), while in Europe (including Croatia) it's been Groupon and Zynga cloning (there are over 40 Groupon clones currently in Croatia only, which is one on each 100k people...).

Regarding cultural differences, in Croatia nearly everyone (over 30) owns their house or appartment; it is not customary to rent, and only students or those with no other choice do it. It's traditional that even young people enter 30-year property loans as soon as they get their first job; property is considered the only viable long-term investment.

People often seek some sort of security first, even young ones, and only then, perhaps, look to "play" with some kind of business idea, usually because it's fashionable and seems like it could be fun. So this question by the investors has the purpose to weed out such "fashion-followers" and find those really dedicated to their cause (it's not a silver bullet of course; it's one of a number of questions with the similar purpose). I don't know of any investors who would require that from their entrepreneurs.

"Why should I invest in you instead of hiring 1/2/3 people and outsource the whole project?"

Most of the questions seem sensible but the one above seems really out of place (and would put me off whichever 'investor' asked it). Has an approach like this ever worked?

Having said that, it's nice to be reminded that there's a world outside SV/London where people can actually get started (and funded).

I came to comment on that exact same question - so not only will VC's not sign confidentiality agreements, but they can ask something like this? I'm curious if there are instances of this happening?

So the right answer to that is "because you are a professional and honorable business man, and not a sleazy bastard". ;)

I'd say the right answer is something like this : 'Because if you do that we will kick that other team's ass and you will regret it. We are the best people for this project and we will kill ourselves to make this product the best in the world.' I guarantee you he would invest in us at that point. :)

That's a common question on Dragons' Den (http://en.wikipedia.org/wiki/Dragons%27_Den#UK)

A common answer is "because we have a patent" which may be what they want to hear.

it's nice to be reminded that there's a world outside SV/London where people can actually get started (and funded).

It's also nice to bear in mind that there's a world outside SV/NYC/London where people can get started and succeed without playing the "getting funded" game at all.

Shocking, I know.

I should have said "(and funded, if required)".

One of the (many) reasons people cite SV/NYC/London as a place to move to is easier access to capital.

You forgot the most important question > 'WHY? Why are you guys doing this that will probably fail, take you 10 years to realise it failed and cause you gastric ulcers of massive proportions?' If they fail to convince me here, I'd turn them down.

gastric ulcers - ouch! Is that all I can look forward to?

absolutely! and a few insomnian nervous breakdowns every now and then :) but if your intentions are pure and vision clear > those are all a mere drops of discomfort in a sea of awesomeness that is a startup. :)

Gastric ulcers are caused by a bacteria (Heliobacter pylori), not the stress of running a startup.

bacteria are caused by a lack of immunity that is caused by the stress of running a startup :)

They're still easily treated with antibiotics. I'd hate for someone to quit their startup because they thought that stress was the primary cause.

@amirmc Actually we were asked that question (outsourcing your project) couple of times. There are few more than tricky questions. You really have to think hard when someone asks you "What if someone copies your service, and offers it half the price?". Every question is a different test.

@ofca I totally agree! If you don't know the "WHY" there's no point in starting anything! There are lots of other important questions as well.

I once read a great comment that when a VC asks "what would you do when Google enters your field", the best answer is "what would you do when Google enters yours"? http://www.googleventures.com/ ;)

Bok! If anyone had asked me the 'outsourcing' question I'd assume that they don't really understand how difficult it is to actually build a business. Furthermore, I'd assume that the person asking me that question, didn't attain their wealth by starting and growing their own company (which would lead me to other questions).

However the question "What if someone copies your service, and offers it half the price?" is an excellent one and is basically getting at what your advantage is. It's not the same as 'outsourcing' in my mind.

You should also bear in mind that you should be testing the investor also. It needs to be a two-way street unless you're only after 'dumb' money (although dumb money probably comes with dumb advice too).

> "Can you see your company becoming a 10 million dollar company?"

This number is much, much too low. 100M or 1B is the common question in North America.

I've been told by a number of early investors that they seriously worry about investing in companies that get to 10M or 20M and then plateau.

This guys are a great example of how to create a startup and get funding in countries like Croatia where the access to VC/angel money is limited. To start globally (when you are outside of US) is much harder then many think.

Thanks for the positive feedback! :) we're going to share all our knowledge & experience, from first baby steps to going on the market.

The success of WhoAPI and the like is really helping the situation improve. There are a lot of great developers and motivated people here, a huge potential.

Congrats to WhoAPI.

My small business has always been global and now I am starting to look at expanding quite quickly. Now I am in a position where I may even be able to execute some ideas that might be of interest to investors.

The question of whether to go global at first is really a very hard question. I think it absolutely depends on the business. Many businesses would benefit by starting locally and working closely with customers at first before going global. Many other businesses would benefit by going global right away. Making the right decision here is sort of tricky.

Now, one thing to note is that this isn't an all or nothing question either. A smart business will globalize where it makes sense and localize where that makes sense. For example, if I am going to go and provide (or send someone to provide) training, I am not going to send someone half-way around the world for a short-term training contract. On the other hand, sponsored development on LedgerSMB is easily global. Payroll subscription services will naturally be a series of local offerings, while technical support for PostgreSQL can be more easily a global one.

Also look at the Sequoia's "Writing a Business Plan" page, it's the best "checklist" to keep in mind, even if you don't actually write a business plan:

http://www.sequoiacap.com/ideas

I particularly like the reinforcement that there are at least 17 other questions that need to be answered (whether asked directly or addressed by you proactively) before they even want to see the Executive Summary.

i looked at the questions, and said to myself, "oh shoot, i dont know the answer to many of the questions!"

honest question, anyone care to share their answer especially for question: why not sell your house, why you're better, what if somebody (startup/big guy) copy your idea with less price, why cant i pay somebody to do it (outsource), without sounding cliche or boasting?

- Why not sell your house? -- "We're really focused on the business and are trying to limit outside distractions, like where is my family going to live, or how am I going to drive to meetings. But liquidating some assets is always an option"

- Why are you better? -- This is going to be different in every situation, especially if you're entering a crowded market. This is your secret sauce. Ideally team expertise should be a part of your response as well.

- What if somebody copies you at half the price -- "It's true others will always try to copy us if we are successful, but we have a 2-year product roadmap. If they do copy us, we will always be a step ahead in our roadmap. Our roadmap is so important because our team has "X" experience in "Y" customer pains." And if your product isn't core to the "Big Guys" business you could always mention that and say that they won't be able to focus on the specific problem the way you will.

- Why can't I outsource? -- You should definitely boast about why you are the team to solve this problem. Investors are pretty optimistic and they get super excited about awesome teams. You want to give them reason to believe that you have experiences relating to the problem you're solving that others won't have. This will also allow them to boast to their friends/other investors about team/product they just invested in. And can help you round up others for your round.

Just a few examples. Hope some of this helps!

wow, thanks man! your answer about not selling the house is very diplomatic :)

> why not sell your house

They want to know if you really have "skin in the game". Just say "that's not a risk I can take, but I have worked X weeks on it for free, and will be on a low salary during the first year or so, and I have had other options - I'm committed".

> why you're better, what if somebody (startup/big guy) copy your idea with less price, why cant i pay somebody to do it (outsource)

Talk about your competitive advantages. I don't know them, and can't give you any non-cliche answers. This is the time for boasting.

If it's a new market, you can point out that scrappy tech companies that "lose" the land grab can be attractive acquisition targets. Would you rather integrate Yahoo! or LinkedIN into your existing business?

If it's an old market, it's got proven fundamentals, and new entrants will probably be deterred by the existing competition.

In the US, for Web 2.0 projects, mostly can boil down to just one question: Do you have traction that is significantly high, say, over 100,000 unique visitors a month, and growing rapidly?

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