How Entrepreneurs Should Answer the Most Challenging Venture Capitalist Question

How Entrepreneurs Should Answer the Most Challenging Venture Capitalist Question

Originally published in Forbes.

Venture capitalists (VCs) make you work hard for their money by inundating you with question after question about your fundraising process, your company goals, your founding team, among other things. Many of these questions will seem reasonable. Some will seem ridiculous.

But no matter the question, you must have an answer. And your answers better be good.

Behind all of this interrogation, there is one key underlying question: what makes you different? Regardless of the variation on the theme, your potential VC is really asking why your business—as compared to others vying for their money—is worth their investment.

If you’re ready to join the ranks of funded entrepreneurs, you need to be prepared to answer this key question. How?

1. Begin with a thorough competitive analysis.

You need to be able to paint the big picture in broad strokes, providing a comprehensive overview of the competitive market, including potential risks, success factors, and barriers to entry.

2. Build your value proposition.

What is your unique value proposition—and how can you prove it? Identify your customers (or potential customers) and their needs. What pain point are you addressing and what’s your proposed solution?

Once you’ve done your competitive analysis and built your value proposition, you’re ready to make the case for what makes you different, weaving your unique selling points throughout your entire pitch. Make sure to consider the following when crafting your response:

It really all boils down to what makes you special. VCs meet so many entrepreneurs; they are the audience for an endless litany of pitches. Unfortunately, this means VCs are often bored and somewhat jaded. They are looking for a spark, for the magic. And they won’t dig to find it. That’s not their job.

It’s your responsibility to bring to the forefront what makes you stand out. Ultimately, you want to thoroughly convince the VC, that, if they take the leap of faith to invest in you, you are going to execute on your vision in a way that you—and only you—are in the unique position to execute on.

What makes you stand out to VCs? Tell us about it in comments below.

Courtesy of YEC

David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.

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