How founders can turn investors' tough questions to your advantage
A 2018 study from researchers at Harvard and Columbia found that investors tend to ask two different types of questions: "promotion" questions— which allow entrepreneurs to talk up the potential of their business— and "prevention" questions that force entrepreneurs to spend time defending their ideas.
By tracking funding outcomes from the pitch meeting the research was based on, the study found that for every prevention question a founder was asked, they raised $3.8 million less in total funding.
Women overwhelmingly received these questions more than men.
Business Insider spoke with researcher Dana Kanze and two founders who have used this research to their advantage to discover how to turn these difficult questions into opportunities.
London Business School professor and startup founder Dana Kanze was browsing through TechCrunch pitch videos during the first year of her doctorate program when an idea occurred to her.
"This would be a really great data set if someone were able to cobble together all of these videos and get them transcribed," Kanze told Business Insider.So Kanze and a team of researchers from Harvard and Columbia painstakingly transcribed and analyzed over 189 TechCrunch pitch meetings, looking for patterns in the language of the conversations and comparing them to funding outcomes.
Some investors asked questions that allowed founders to explore the potential of their ideas- "promotion" questions - and others asked questions that forced founders to spend time defending their ideas - "prevention" questions.The impact of the two different types of questions was dramatic. Every time an
Kanze said when investors pose these types of questions it is "decidedly not conscious," but the impact of them is real."The onus is on the investors to reform their practices," Kanze said. "Female entrepreneurs aren't doing anything wrong. They don't have to fix themselves to make sure that they're more attractive investment opportunities." However, the same research found that there are ways founders can turn these questions to their advantage.
Business Insider spoke to Kanze, a startup founder, and an investor who have all utilized this research to find out how to identify these questions and what to do about them. The impact of these questions is felt disproportionately by women, but any person can benefit from understanding them.
Identifying promotion vs. prevention questions
Jacqueline Kennedy is a former startup founder who now works with entrepreneurs at Amazon Web Services. She started teaching a workshop on preventative and promotional questions after reading the paper and reaching out to co-author Laura Huang to learn more.She teaches founders who take her class how to figure out whether or not a question is preventative.
Kennedy said "What's your competitive advantage?" is a common promotion question, whereas "Why can't [big company] just do this?" is a common prevention equivalent.
"Does it put you on the defensive?" Kennedy said. "Does it force you to explain the essence of your company instead of your goals and vision? Does it ask you exclusively about retention, costs, risk, or loss?"
How to respondThe key to turning these questions into opportunities is to answer them as though they were more favorable.
"When a founder is asked a prevention question, they should essentially rephrase the question as promotional and ask the investor if this is what they meant," Kennedy said.But don't do this with every question. Otherwise, "you'll find yourself constantly correcting investors or clarifying specific points, and that makes for an awkward experience," Kennedy said.
But don't dodge the question. Spend one or two sentences at the beginning of your response answering directly answering investors."If I'm asked something about, specifically about the income statement, I'm not going to go off and talk about the balance sheet," Kanze said.
Practice, practice, practiceBoth Kanze and Kennedy recommend founders attend a workshop to get a better understanding train relentlessly to tell the difference between prevention and promotion questions.
"The more they familiarize themselves with prevention questions, the more effectively they can anticipate and answer them," Kennedy said.
Tutoring startup Edlyft cofounder Erika Hairston attended one of Kennedy's training and used it to her advantage, making a list of common promotion questions and answering them like they were promotional questions.When someone asked "Why would people use this [Edlyft] over a bigger player in the market?" she answered them as though they had asked "What is special about Edlyft ?"
When someone asked "Is this market big enough?" she answered them as though they had asked "How does this turn into a big business?"
And when someone asked "How will you manage high acquisition costs?" she answered as though they had asked "What is your plan to acquire customers?""I created almost like a language translation," Hairston said.
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