How to Answer Five Trick Investor Questions

Introduction and Background

This video covers the 5 most common "trick questions" that investors ask and how to answer them correctly. Brett, the host, shares his experience of losing millions of dollars in funding due to wrong answers in investor meetings, and promises to help viewers avoid the same mistakes.

He emphasizes that "investors already know the answer" and specifically explains why these questions are asked and how to handle them.

Trick Question 1: "What's your exit strategy?"

This is one of the most frequently asked investor questions. Brett confesses that he made a big mistake answering this one in the past. He answered "IPO seems possible," and the investor immediately countered, saying he thought the company should be acquired.

• Wrong answer: Mentioning specific exit strategies like "IPO is possible" or "We're considering an acquisition."
• Correct answer:

  "I'm focused on growing my company. The exit will follow naturally." This answer gives investors confidence that you're focused on company growth.

Trick Question 2: "What would you do if a company like Google or Facebook copied what you're doing?"

Investors frequently ask this question to evaluate a startup's competitiveness. The key point is that investors already know big companies can replicate your idea.

• Wrong answer: Overconfident responses like "They could never copy us."
• Correct answer:
  1. Acknowledge the fact: "Of course, big companies have the capability to copy what we're doing."
  2. Strategic response:

     "But from a big company's perspective, it would be cheaper and more efficient to acquire us than to replicate what we've built." This answer implies that your business is an attractive acquisition target.

Trick Question 3: "What would you do if Google or Facebook entered your market?"

This question is an extension of the previous one. Investors want to know how you'd respond in a crisis situation.

• Wrong answer: "That won't happen" or "We'd need to change our strategy."
• Correct answer:

  "This market is just another market for big companies, but we're exclusively focused on it. Our team is the best in the industry, and we're confident we can fight to the end and win." This answer emphasizes your focus and execution ability, building investor confidence.

Trick Question 4: "What valuation are you expecting for this round?"

This question looks simple on the surface but is actually very tricky. Investors may try to exploit your lack of negotiation experience.

• Wrong answers:
  1. Stating a valuation so high it scares off the investor.
  2. Stating a valuation so low you shortchange yourself.
• Correct answer:

  "The market will determine the value." This answer gives the impression that you're skilled and prepared for negotiation. If the investor continues pushing for a specific answer, you can say: "I've seen similar companies valued between X and Y." This maintains flexibility while still addressing the investor's question.

Trick Question 5: "What keeps you up at night?"

Investors ask this to gauge your concerns and problem-solving ability.

• Wrong answers:
  1. "Nothing worries me." → Unrealistic and erodes trust.
  2. "Everything worries me." → Reveals lack of confidence as a leader.
• Correct answer:

  "My concern is continuing to hire top talent. But I have great confidence in our current team, and I trust they'll execute brilliantly." This answer shows you recognize specific challenges while maintaining a positive attitude.

Closing and Additional Resources

Brett closes the video by offering viewers his free startup pitch deck template, which includes slide structures for presenting effectively to investors.

He also asks viewers to leave comments about what they learned or any questions, and requests subscriptions and likes.

Key Summary

1. Investors already know the answer. The purpose of the question is to evaluate your thinking and attitude.
2. Concise, strategic answers are what matters.
3. Emphasize focus, execution, and flexibility.
4. In negotiations, maintain the stance that the market determines the value.
5. When asked about concerns, give specific yet positive answers.

This video provides practical advice to help startup CEOs overcome the common challenges they face in investor meetings. Use Brett's experience and tips to prepare to confidently answer investors' trickiest questions