Answer questions well

Welcome to the third lesson in this part of the module. In the previous lesson we learned about the benefits of delivering a high energy pitch on how investors perceive you. In this one, we’re going to cover why handling investor questions well matters and provide you with guidance on how to do so.

Let’s start.

As discussed in our Pitching Fundamentals module, you can divide the typical meeting with a VC into two parts, presentation and Q&A. During the presentation portion, you have complete control of the narrative so you have no excuse to underperform. However, once VCs start asking questions, you have a lot less control. This loss of control causes a lot of founders to fall apart.

There are two common errors that make founders look bad when answering VC questions. 1) They answer in an unstructured way and 2) they answer the wrong question. So our advice for answering questions well is pretty simple:

1. Provide structured answers
2. Make sure you’re answering the right question

Let’s discuss how to do each of these.

1. Provide structured answers to questions

In meetings, VCs ask a lot of questions about your business. While most of the time founders are able to give straightforward answers, sometimes the truth is just messy. In these messy situations, many founders default to saying some version of ‘it’s complicated’ resulting in exchanges that look like these examples below:

Q: How often do customers order?
A: Different customers order with different frequencies

Q: What types of businesses do you target?
A: It’s tough to say, we work with a lot of different types of businesses

Q: How long is your sales cycle?
A: It’s complicated, the length of our sales cycles varies a lot from customer to customer

They may look harmless, but trust me these types of responses are killing you.

Even though these answers are true – they make you look terrible in VCs’ eyes because they are so vague. Their vagueness has two negatives. Firstly, it makes you sound like you don’t know what's going on in your business. And secondly, it leaves the investor without a useful answer to their question.

Your goal when asked a question with a messy answer should be to give a truthful, nuanced response that still makes you sound strong. To do this you need to structure what you say.

How to structure messy answers

When handling questions with messy answers, I've seen two approaches work. You can either average or bucket. Averaging is self-explanatory, while bucketing involves structuring the ‘it’s complicated’ response, by categorizing it into groups (buckets) and answering the question for each of them.

With averaging, the answer to the “how often do customers order?” question might be:

The median customer orders once every 2 months.

While with bucketing it could be something like:

50% of our customers order every month, 30% percent order every two months, and 20% percent every quarter. Typically the customers with over $50,000 in annual spend order monthly

The bucketing method, complete with metrics, is just as nuanced as the ‘it’s complicated’ answer, but the precision makes you seem like someone in complete command of the details of your business rather than someone drowning in complexity.

The takeaway: if you get asked a question with a nuanced answer, use averaging to simplify or use bucketing to go into detail in a structured way. Don’t just say it’s complicated.

2. Answer the right question

It’s unbelievably common for founders to mishear or misunderstand investor questions and answer the wrong thing. Don’t do this.

Answering the wrong question has two negative effects

1. The investor’s question simply doesn’t get answered leaving them confused or frustrated
2. The investor might think you’re deliberately avoiding the question

The latter, for reasons we’ll discuss when we cover dishonesty, is really bad for how your team is perceived.

Answering the wrong question is difficult to prevent, but there are things you can do to make it less likely. Below are some tips that can help you avoid this mistake:

• Pause and think before answering investor questions
• If you’re not 100% sure what a question means, ask for clarification
• If a VC is repeatedly asking you the same question, think carefully about what’s being asked, this is often a sign that you’re misinterpreting the question

There’s not much more to say here other than be vigilant.

Conclusion

To help you put the bucketing technique we just introduced into practice, instead of just moving onto the next tip, the next lesson will contain a detailed explanation of how to use it. We’ll do this by showing you real footage of a founder trying to answer a question with a messy answer, breaking down why they fail, and then showing you what a perfect structured answer could have looked like.