13 of the Smartest Questions Investors Ask Entrepreneurs

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What is the smartest question an investor has ever asked you?

1. What’s the Biggest Threat to Your Success?

Andrew ThomasThis question forces you to demonstrate your ability to realistically evaluate your market potential and the maturity to acknowledge that threats exists. The investor is also testing your composure — as this question can cause defensiveness. If asked, take a deep breath and be honest about your threats and how you will address them. This builds confidence and trust instead of a red flag.

– Andrew ThomasSkyBell Video Doorbell

2. What Happens if You Get Hit by a Bus?

John RoodOf course the founder is critical to the enterprise, but especially for small businesses, I’ve found that smart investors want to make sure you have a clear pathway to generating enterprise value that isn’t just you personally working 80 hours for the rest of your life. Luckily, this can help you prioritize delegation, which you should be thinking about anyway.

– John RoodNext Step Test Preparation

3. Why Is This Opportunity Any Different Than Going to Vegas and Throwing It All on Red?

Jonathan LongI’m currently consulting for a new app and they have one investor who is funding the entire program. He jokingly asked me, “Why is this opportunity any different than going to Vegas and throwing it all on red?” While it was more of a joke, it was a legitimate question. You need to be able to sell and defend your concept. If you can’t, why should an investor feel comfortable writing a check?

– Jonathan LongMarket Domination Media

4. What Happens if Facebook Goes Out of Business?

Piyush JainWe were starting out an app idea completely based on Facebook. Investors asked what happens if they go out of business. We went blank. We ended up reshaping the model, though, so it would not be fully dependent on Facebook, and it ended up being a better app. Sometimes we tend to over-rely on big systems which can be more susceptible to failures than we are.

– Piyush JainSIMpalm

5. Why You?

Blair ThomasHaving to answer that very simple question can often stymie even the best stakeholders. Are you different? What do you have to offer that your competitors do not? Why am I investing in you when there are 12 other companies competing for my dollar? It can be a difficult question to answer, and one that you should have an answer for. Be prepared to argue your case as a differentiator.

– Blair ThomasEMerchantBroker

6. Why Now?

Charlie GrahamGreat market timing — more than even team or idea — has traditionally been the best predictor of a company‘s success. Chances are someone else has tried an idea similar to the one you are pitching. What fundamental change has occurred in the market that makes right now (versus 3-6 months ago) the best time to start this company?

– Charlie GrahamShop It To Me, Inc.

7. How Can I Help?

Zoe BarryThis question is a litmus test. Keep in mind not all money is equal shades of green. I’ve found the best investors want to know what my challenges are and where they can add value. Once an investor puts money into your company, their role is to help the management team build a great business. If an investor doesn’t ask you how they can help, don’t take their money.

– Zoe BarryZappRx

8. Why Can’t You Just Bootstrap This Business?

Ross ResnickUntil an investor asked me this question, I was convinced that outside investment was the only way to start a company. Answering his question forced me to analyze my initial product development road map and reimagine it to be immediately cash flow positive and self-sufficiently scalable. This fundamental shift enabled rapid, responsible growth.

– Ross ResnickRoaming Hunger

9. Who Is This For?

Vik PatelWe often develop business ideas by looking at successful models and applying them to a different domain — the Uber-for-X approach. It’s easy to miss the most important point: Who is this for? Being asked that forced me to think concretely about the people for whom I would be solving a problem and make the appropriate changes to the execution of business ideas.

– Vik PatelFuture Hosting

10. What Excites You?

Ty MorseAn investor asked me this to find out what motivated me, and I think that’s what investors need to know. Are you going to pursue this idea until it succeeds? Do you have the drive, the energy, the passion to make this work? This question gets to the core of who you are and lets investors learn a little about who they’re investing in.

– Ty MorseSongwhale

11. How Long Do You Think the Money Will Last?

Vishal ShahThis question forces you to demonstrate your understanding of the revenue streams, cost structure, cash burn and runway. VCs want to know how you plan to spend the money and if what your ask is realistic enough to get you to your next milestone. If you seek to raise too little or expect an unrealistic runway, it indicates that you haven’t thought through how you will scale your business well enough.

– Vishal ShahNoPaperForms

12. Does Your Business Align With Your Experience?

Erik SeveringhausLon Chow asked me why my experience didn’t match the market I was entering, as I left a successful career at IBM to start a B2Ccompany. There’s a lot written about product-market fit, but not enough on founder-market fit. Does the founder truly understand nuances of the industry? What makes it tick? Lon zeroed in on the misalignment in our first meeting and I realized just how right he was.

– Erik SeveringhausSimple Relevance

13. Why Are Other Investors Passing?

Fan BiDon’t take it as a passive-aggressive question and get defensive. You should have a good answer. The best answer you can hope to provide is that they didn’t believe in the market or where it’s going. Different investors have different theses on macro trends and will understand other investors not believing in yours.

– Fan BiBlank Label

What You Need to Know About the New SEC Crowdfunding Rules

“Bureaucracy defends the status quo long past the time when the quo has lost its status.”  — Dr. Laurence J. Peter

When Congress passed the JOBS Act it mandated that the Securities and Exchange Commission finalize new crowdfunding rules within nine months. Well, the SEC missed the deadline by nearly three years, but on October 30, 2015, it finally approved the new rules. They “go live” April 2016 and there are some details you really ought to know…

What You Need to Know about SEC Crowdfunding Rules

Verge regulars know that last year Indiana passed its own, intra-state crowdfunding law (see my prior Verge article). While the Indiana-specific rules are now likely to gather dust because they limit your pool of potential investors to only Hoosiers, the federal rules may prove to be a robust marketplace for small-scale capital raises. Here’s a quick snapshot of the SEC’s final rules.

But First, Why New Rules?

As most know, selling securities is a highly regulated activity. Securities must be sold on public exchanges, unless there’s an exception.

The exception most familiar to entrepreneurs is the 506(b) safe harbor, which allows companies to sell securities to accredited investors in a private placement. Accredited investors include, among others, banks, high net worth individuals and trusts, and the issuer’s officers and directors; that is, those with sufficient knowledge and resources to “know better” and to absorb any losses from risky investments. Sites like CircleUp and AngelList have used crowdfunding for a few years, but they limit access to accredited investors.

verge startup pitches at the hi-fiOf course, there’s potential upside to investing in startups, and the “99%” who lack the income to qualify as accredited investors are presently shut out from investing in early and mid-stage companies.

Crowdfunding solves that problem by creating a new safe harbor where start-ups can raise money off of the public exchanges.

5 New SEC Crowdfunding Rules for Companies

Here are a few key rules for companies crowdfunding under the new SEC guidelines:

  1. Max Raise. A company may raise up to $1 million in a 12-month period from the crowd. (Note: under Indiana’s law, a company that provides Hoosiers with audited financials may raise up to $2 million).
  2. Portal. The company must conduct the raise through a registered third party “funding portal.”
  3. Target/Deadline. Through the portal, the company must set a target offering amount and a deadline to reach that amount, and it must allow investors to back out of any commitment up to forty-eight hours before the deadline.
  4. Investor Disclosures. The company must disclose certain company information to investors. The amount of disclosure required is similar to what start-ups are accustomed to disclosing to accredited investors: risk factors, business plans, financial statements (balance sheets, income statements, and cash flows), governance, and the like. You’ll want an experienced lawyer’s assistance.
  5. Annual Reporting. The company must file annual reports with the SEC, but with nowhere near the depth required of publicly-traded companies. Failure to comply with this or other SEC rules could strip you of your exemption. Not good.

Ding Dong the Wicked Audit is Dead (Sort Of)

New SEC Crowdfunding Rules For financial disclosures, the SEC’s proposed rules had called for audited financial statements for all raises above $500,000. There was tremendous push-back due to costs; for instance, Slava Rubin, Indiegogo co- founder and CEO, called audits, “a massive deal breaker.” Fortunately, the SEC slackened the requirement for first-time crowdfunders. The new rules require:

  1. For offerings of $100,000 or less, financial statements must be certified by the company’s CEO.
  2. For offerings between $100,000 – $500,000, financial statements must be reviewed by an independent auditor.
  3. For offerings greater than $500,000, financial statements must be reviewed by an independent auditor for first time crowdfunders, but for any follow-on crowdfund campaign the financial statements must be audited.

4 Crowdfunding Rules for Investors

Individuals will be allowed to invest based on annual income or net worth. Under the new rules, an individual may:

  1. If annual income or net worth is less than $100,000, invest the greater of $2,000 or 5% of the lesser of annual income or net worth.
  2. If annual income or net worth is $100,000 or more, invest 10% of the lesser of annual income or net worth.
  3. Invest not more than $100,000 per annum aggregate in crowdfunding offerings.
  4. Sell the securities, but only after holding them for one year.

Importantly, funding portals may rely on the investor’s representations concerning annual income, net worth, and the amount of the investor’s other crowdfunding investments, unless the portal has reasonable basis to question the investor’s representations. That is, there’s no affirmative obligation on the company or the portals to prod into investor’s private financial affairs to verify the investor’s representations.

Outlook for Investors and Entrepreneurs with the New SEC Crowdfunding Rules

Crowdfunding Rules for InvestorsVenture capitalists aren’t sweating. At $1 million a crowdfunded project is small even for a seed round, where average deal size hovers around $4 million and which constituted a mere 1% of 2014 VC dollars ($719 million of $48.3 billion).

On the other hand, one commentator noted that if U.S. families invested 1% of their assets in start-ups via crowdfunding, it would unleash $300 billion annually. The success of state-specific crowdfunding rules and of non-equity platforms such as KickStarter, Go Fund Me, and Kiva indicate there’s a sizable market for small denomination equity investments. And there’s certainly no dearth of start-ups looking for capital.

Ongoing SEC rules and reporting requirements will always be a deterrent to start-ups and will hamper crowdfunding’s potential, but as quality funding portals develop and the public acclimates to the new investing landscape, crowdfunding may become a useful tool for small-scale capital raises.

How will these rules change how you grow your business? Will you invest using the new Crowdfunding rules? Let us know in the comments below.

© 2015 Faegre Baker Daniels. All rights reserved.

8 Universal Qualities of Great Pitch Decks

“Send me your deck.”

Early entrepreneurs hear this a lot. And it’s because a pitch deck is a great way for an investor or potential customer to quickly size up your company. 

So, don’t leave this important communications piece to chance. We interviewed eight experienced entrepreneurs to get their perspective on the important aspects of an effective pitch deck.

Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

What’s one lesser known thing you can include in a pitch deck that will really wow a VC?

1. Revenue

Danny BoiceWe very deliberately set out to have a solid revenue story for investors from day one. I know this sounds like common sense, but it’s unfortunately quite rare. I can’t believe how many investors we’ve pitched to who couldn’t believe that we had revenue our first month in business.

– Danny BoiceTrustify

2. A Personal Connection

Kristopher JonesDo research on the personal background of the person(s) you are sharing a deck with, and find one or more things in common to create a lasting personal connection. Maybe you went to the same college or high school. Maybe you are both Philadelphia Eagles fans (that would make three of us) or both attended Burning Man. A genuine personal connection can impress a VC and set the tone for discussion.

– Kristopher JonesLSEO.com

3. Synergies With Their Current Investments

Daniele GallardoI found that it is really important to understand the portfolio of your VC or strategic partner. Browsing the companies that they funded in the past gives you an understanding of what is important to them. If the companies are in the realm of what you do, it is often very simple to find synergies that the VC would really love to see in your deck. Do the homework for them, and show them!

– Daniele Gallardo, Actasys

4. Lessons Learned

jared-brownTelling VCs that you’ve made mistakes and sharing what you’ve learned from them will definitely make you stand out from the other startups that might be pretending to be perfect. You’ll show them that you’re adaptable, resilient and perceptive — all qualities they’re looking for in a potential investment. Then show how the lessons added to the value of your product or expanded your market reach.

– Jared BrownHubstaff

5. People Who Believe in You and How to Contact Them

dave-nevogtIf you already have influencers and advisors on board, show VCs who the three or four most important ones are and how to best get in contact with them. Having established entrepreneurs and businesspeople who will sing your praises to potential investors is an important signal of credibility, and in some cases, it can sway a VC that’s potentially interested but still needs some reassurance.

– Dave NevogtHubstaff.com

6. Video

Miles JenningsVideo and imagery are what attracts attention most from any audience you are trying to speak to, even an audience of VCs. Include a short video in your pitch that shows who you really are as a company, what you have accomplished and what your goals are. The video will make your story more tangible and will give a VC an inside look at your company and what you have to offer.

– Miles JenningsRecruiter.com

7. Thorough Financials

Jason LaAs an active investor in early stage companies, I review pitch decks every week, and I would be impressed by a thorough discussion of key metrics beyond mere sales projections. This should include compound annual growth rate, customer acquisition cost and return on equity as well as a timeline of the cost to achieve specific milestones. Thorough financials demonstrate solid business acumen.

– Jason La, Merchant Service Group, LLC

8. Future Vision of the Industry

Mike SeimanInclude the vision of the future of your industry. Too many people get caught up in the numbers and forget to tell a story. VCs want to know the bigger picture – where your company and your industry is going. In the end, marketing and finance decks aren’t that different. Both tell VCs a story and focus on getting them to invest in that vision.

– Mike SeimanCPXi

Pitch: PactSafe is the 1st Application that Seamlessly Manages, Tracks and Deploys Website Legal Agreements

PactSafe is the first application that seamlessly manages, tracks and deploys website legal agreements. In his August presentation at Verge, Brian Powers unveils PactSafe to the world. Watch his 5-minute pitch here:

PactSafe: Seamlessly Manage, Track and Deploy Your Website Legal Agreements

What is website legal?

  • Terms of Use
  • Privacy Policies
  • Terms and Conditions
  • Disclaimers


The problem:

  • Enforceability
  • Deployment and Management is a Huge Distraction
  • Tracking is Non-Existent

The solution (PactSafe):

  • Maximizes enforceability of website legal agreements.
  • Manages and deploys all aspects of website legal without disrupting development teams.
  • Tracks and records user acceptance of website legal agreements and modifications.

How you can help:

  • Sign Up and Use PactSafe!
  • Spread the Word!
  • Email the founder, Brian Powers if you or someone you know is looking for any of these awesome jobs

How are you currently managing website user agreements? Does PactSafe look like something you would use?

Two Companies to Watch: DCODIA and Social Sweepster

2 Companies to watchCamera and image-based technologies are at the core of two Verge startup companies. And, while their businesses couldn’t be more different, both founders draw from close personal experiences to focus on a problem they know well. Both are pitching at Verge on April 24th.

These startups approach interesting problems with novel solutions that are well worth keeping your eye on.

Picture This: Two Image-based Startups to Watch

DCODIA Decodes Dyslexia

Co-founder and CEO Kris Parmelee recently said, “Necessity is the mother of invention and I’m the mother of a dyslexic child.”

Kris at DCODIA


Frustrated with the lack of assistive technology for her son’s needs, Parmelee decided to solve the problem herself.

DCODIA is a discreet mobile solution designed to help dyslexic students read without the assistance of a parent, teacher or tutor. With it, readers who get stuck on a tricky word can un-stick themselves—which means greater freedom and independence for dyslexic students everywhere.

And, thanks to the unique data tracking features baked into DCODIA, dyslexic students will soon have better insight into precisely where their challenges are and how to overcome them.

Social Sweepster Cleans up Your Act

As a recent college graduate, Tom McGrath wanted to make sure that he continued to carry the lessons he picked up at Indiana University with him. He didn’t so much want to carry every beer he’d had at school with him, though. But with the proliferation of social media into so many aspects of our lives, Tom (and countless grads like

Tom at Social Sweepster

him) discovered that it’s not so easy to leave your digital footprints behind.

Enter Social Sweepster, the image recognition platform that promises to simplify putting your best foot forward online. The tool scans users’ social profiles and flags unbecoming photos (how many solo cup photos do you have on Facebook?) so graduates can be confident stepping into the “real world.”

Social Sweepster isn’t alone in the image recognition market—but as Facebook, Google and Apple are already snatching their competitors up, the future looks bright for this young company.

Continue reading

DreamShare takes on Video with BadaBoom

badaboom video pitches verge

Video’s hot right now and everyone knows it. Trying to cash in on the gold rush is web app developer, DreamShare. Their new web app, BadaBoom, aims to act as a sort of Pinterest for video. Make it easy to make lists and share those list among your social networks. John, Josh, and Squid walked us through the pitch at Verge Bloomington

Company: DreamShare (BadaBoom)

Business: Web App Building

Key Value Prop: Bada Boom allows you to keep a clean record of your favorite videos and share them through various social media sites

Pitch Successes We Can Learn From

  • Establishing a Gap in the Market: We all know how large the market is for online video sharing, but we may not know that there is a gap in services being provided. By establishing this early, you’re validating your idea.
  • Live Walk Through: So frequently you can get lost in screenshots. If all you have is an MVP, that’s one thing, but when you’re pitching a working web app, I want to see it! I love that they went through and did a live demo.
  • Comparison to Something Established: It could be easy to look down on them for being small and not well known, but by drawing a comparison to early stage Reddit, they’re sending a message. Don’t you wish you invested in Alexis Ohanaian early?

I was missing the comparison to their competitors. Let’s not shy from the elephant in the room (and the marketplace). How is this app going to differentiate itself from YouTube which allows you to create and share playlists? What about Vimeo and Vevo that allow you to do the same? This is a crowded market, what makes you different?

What were your thoughts? Do you believe in BadaBoom’s product or do you think their competition is too stiff?

Why Launch a Tech Company in Indianapolis? Verge Does it #WithGusto

The question has been asked of Shawn Schwegman too many times. The founder of Gusto, an email app about to launch, had entertained the idea of launching at South by Southwest (SXSW), but declined. Instead, he decided to launch his company from the Verge stage here in Indianapolis. The result? The largest launch in Verge history.

So if you were a tech startup, why would you want to launch in Indy? Keep your eye on these three trends in Indy that set it apart from other tech scenes throughout the nation.

1. Community


Personally, I have been involved with Verge for about 8 months and I’ve heard this community receive high praise from everyone who comes to know us–from IEDC President Eric Doden last night, to reddit.com co-founder & best-selling author Alexis Ohanian just a few weeks ago. And what we have in Indianapolis is special for many reasons beyond our tech talent. Yes, Indianapolis is the Marketing Technology Capital of the World. Yes, Indiana is second in the nation at attracting out-of-state talent to our Universities. Yes, Indianapolis is positioned to launch some of the nation’s coolest tech startups, but that alone isn’t what makes Indy great.

Our community came out in a big way last night. 500 techies joined to help launch a new brand that is in a position to revolutionize the way we view email and personal storage, and that’s what this community is best at. Supporting one another and lifting each other up.


2. Access to Talent

A common refrain for Shawn throughout the process of building Gusto was “Go Big or Go Home.” He wasn’t going to half ass this app, so he found five of the best developers in the state, grabbed the best branding agency and PR firms he could find, and shelled out some serious dough.

Well, one of those is a lie.

Shawn talked last night about how the talent we have here in Indianapolis is as good as anyone in the world, but here you don’t have to pay the premium. You can get world class work done for half the price of Silicon Valley or New York.

3. Analytic and Marketing Capacity

Indianapolis is uniquely positioned as the Marketing Tech Capital of the World, and Shawn used every bit of that capacity he could find. As an analytically-driven person, he’s running thousands of marketing campaigns with this launch, micro-targeting every single one with the ultimate goal of making the advertising as personalized as possible.

This highly-analytic, yet creative, approach is a quintessential Indianapolis move that takes advantage of technologies that didn’t exist until recently. While this is definitely the more difficult path, Shawn doesn’t flinch at the task. He understands that this is what you have to do if you want to tango with big data.

I was extremely proud of the Verge community last night. It was incredible to see such a large group of people come out and support Shawn and the Gusto team. This community is why people like Shawn are choosing to launch in Indy as opposed to at SXSW, and it’s why so many new Indy-made companies have so much forward momentum right now.

And we aren’t showing any signs of slowing down.

What else makes Indy a great place to build and launch tech? What opportunities do we have to step our game up to the next level? Drop your thoughts in the comments below!

Game Mechanics Meet Education: Chris Gray Pitches Track Ahead

Track Ahead uses game mechanics to help companies recruit college students

As the world of recruiting top talent to businesses changes, there are tons of great opportunities for disruption. Track Ahead is looking to disrupt the field by adding game mechanics to college education to help pair students and employers. By gamifying the education and recruitment process, Track Ahead is venturing into uncharted waters and people have taken notice. This education gamification startup has pitched at The Economist, and Founder Chris Gray was kind enough to pitch for a second time at our Verge Education Celebration at the Conrad, take a look:

Key Takeaways

  • Never Apologize for Evolution: Chris talks about the evolution of Track Ahead and how the company has changed and pivoted through the years, but he warns against apologizing or making excuses for why you’ve changed course. “You just get out there and talk and some of the ideas are going to be validated and some aren’t.”
  • Always Be Learning: Those pivots and adjustments were necessary, but they wouldn’t have been possible if Chris wasn’t constantly learning. His biggest advice, however, is to never make the same mistake twice. “There’s very little education in the second kick of a mule.”
  • Always Cater to Your End User: As Chris gives a high-level overview of the future of Track Ahead, he mentions building around the features that the students, educators, and businesses are actually using. This is always important for founders in the early stages. You have a limited amount of functionality you can launch with. Use it wisely.

For Chris’ pitch for The Economist and more information on Track Ahead click here.

What were your thoughts on his pitch?

Verge Startups Pitch Review: Earbits

Every Modownloadnday we feature a pitch from a recent Verge meeting at one of our hubs. Today’s post comes from Joey Flores from Bloomington pitching his company, Earbits.

Company: Earbits

Business: Music Advertising

Key Value Prop: Allow bands to play their songs for users who are interested in their style of music.

Pitch Successes We Can Learn From

  • Establish credibility: Joey started his pitch by establishing why both he and his business partner are uniquely positioned to corner this market.
  • Put himself in the buyers shoes: By telling a story of how he had to deal with this problem himself, he was able to validate the idea.
  • Show his believers: He showed a slide around the 3 minute mark that had many of his current investors listed. While this isn’t always possible, it goes a long way for investors to know that they’re not the only ones that believe in your vision.
  • Show results: Comparing $58 in flyers to $58 in Earbits promotions really hammers home the value of his platform.

If I were there, I would’ve asked Joey to explain how the song selection works. As a user, would I exclusively hear paid bands, or would it be a combination of bands I know with bands that paid for advertisements? Is there any sort of ratings system like Pandora? It sounds like a walkthrough of the actual user interface would have been helpful.

What are your thoughts on Joey’s pitch? Does Earbits finally solve the problem of music marketing or does it, as Paul Grahm said, “kill an otherwise good startup?”

Verge Startups Pitch Review: Evacua

Every Monday we highlight a pitch from a recent Verge Pitch Night at one of our hubs. Today’s post comes from Mike Beckwith from Bloomington pitching his company, Evacua.


Company: Evacua

Business: Evacuation and Safety Program for Travelers

Key Value Prop: Access to private transport for travelers, even when commercial and government transport is unavailable.

3 Pitch Successes We Can Learn From

Mike zeroed in on a couple of things in his pitch that can really help elevate your pitch to the next level.

  • Tell a story: By sharing the story of his friend, Chris, trying to escape a tsunami, Mike was able to create a more compelling pitch.
  • Establish a clear problem: “There’s an excess amount of inventory available, but there’s no good way to manage it.”
  • Establish a clear pain point for a consumer base: “If he was on a business trip for his company (in the middle of a tsunami, with an inability to escape), they could be sued for a lot of money. 31 of the last 35 companies to get sued for this have lost big.

When asking for a six figure investment, your revenue model can be what makes or breaks your pitch. A few things I wanted to know:

  • Who are you targeting? Individual travelers? Companies with business travelers?
  • How much is this going to cost me?

What are your thoughts on Mike’s pitch for Evacua?