Fundraising 101: Sales Questions Asked During VC Interviews

Fundraising 101: Sales Questions Asked During VC Interviews


Alexander Jarvis Gives A Comprehensive Overview Of What VCs Want When They Talk Sales

This is the second part of a series of venture capital startup interview. In this post, we will be covering almost every question that an investor will ask you about sales when you are pitching to raise money, so you are totally prepared.

Sales Questions Asked During VC Interviews

Question: How do you sell this to customers?

What they mean

Founders need to know how to communicate and need to know how to sell a product. By Asking this question investors want to know not only how’d they pitch this to customers, but whether the founders can do so themselves. The reality is you are going to suck at pitching your start-up when you first start out and will get better over time.

The founders are going to be the ones who do the first deals and perhaps will continue to do so overtime. You can’t just hire a VP of sales and assume everything will work out, you have to be able to teach the VP of sales how to sell your product when you hire them. Not being able to sell your own product/company when put on the spot by a VC is a huge red flag.

What you need to say

You literally need to be able to pitch the VC there and then and communicate the key points of your business like you would with a client. What is also important though is to remember that you are in a pitch meeting to close the investor. You need to do just enough and spend just enough time to answer the question and impress, whilst also being able to allocate enough time to get through all the other key points that you need to communicate such as the team, your product, and the ask. Always make sure you enforce the size of the market!

“Okay let’s do this, assuming that we only have 60 minutes together, why don’t we do role-play briefly and I’ll start by introducing our product, explaining why it would be of great value to you. Let’s assume that you are our typical client who would have 50 employees in the manufacturing sector, be currently using Excel and look to digitalise their business. The people that we typically pitch is the VP of manufacturing, so let’s pretend that you are the VP of manufacturing and you can ask me some questions in a role play. ‘Great to come in today, how are you managing your staff at present?’….”

Question: What are the main objections leads have?

What they mean

Whilst this is an interesting question generally, what the investor actually is trying to discern is what is wrong with you! What are your bottlenecks, where do you need to improve, why aren’t you going faster etc. It’s best not to lie too much here; you don’t want to get caught out on something the VC can figure out themselves, especially if it is obvious, or comes out in conversation later.

Before you answer this question, you might want to pause and reflect and communicate answers that are both honest and understandable.

It is always best to group things into three. So, if you get objections for a lot of reasons, try to group them into three buckets. For each objection, you want to present the objection and that you’re learning, to show that you are continually listening and learning.

If you know the background of the VC, then this is a great opportunity to build rapport. Say ‘ Sarah’ I know you did partnerships with Pinterest. How would YOU deal with this? People love to talk and feel smart

What you need to say

“We are out pitching everyone that we can to try and get traction, as you can expect. As we have been trying to identify our perfect customer and specifically who we should be pitching, we have not always it’s the right person. There’re three main buckets of reasons why people have objections with us:

1/ Breadth of integrations the large companies need more integration that we currently can’t provide. The learning is that we need to find more midsize companies than the super large ones, who have less expectations, until we have enough resources to build them. We need to work up the value chain.

2/ Mistrust of AI- AI is the new space and people don’t fully trust the technology yet. The first part of each pitch is actually teaching them how AI works and what basic things are like machine learning. It’s great that we are leaders in this space, but the industry we are pitching doesn’t quite understand it yet, so we need to do market education.

3/ Pricing methodology- we have a value based pricing system which should maximise our revenue. We have found most people in the industry have not used this pricing system before and are used to paying a license. We have to get a bit better explaining why this is a win-win for them and for us long-term.”

Question: Who specifically do you sell to?

What they mean

The Investor wants to know what role, specifically, you are pitching at, and at what level— is it the VP Sales, VP Marketing or are you talking to junior people down the chain?

Who are the decision-makers and are you able to get to them? If you are not able to talk to the decision makers, it may mean that you do not hustle enough, do not have a network, or perhaps there is a general lack of interest in what you’re doing?

Knowing who you’re pitching to also has some implications on the type of people you can hire. If you’re selling a basic $20 a month product you can hire generic sales people, or even, hungry, recent grads. If on the other hand, you need an enterprise level application for this, you will have to be talking at least to the CTO which is a very different sales strategy and different types of salespeople, who may also be far more expensive.

What you need to say

“We go in at quite a high level. The fact that we are in such an interesting space, artificial intelligence, most people want to chat out of a fascination to learn what the hell is happening. It’s quite an exciting time for us.

We don’t find it hard to get high-level meetings and we have a broad network of people who are happy to make introductions for us as they would like to join the team.

We are working on a commission structure with them for referrals. Since we will have a high margin, this is fine to pay them a good incentive rate. The people who make decisions on this are typically the CTO. They meet with us and just want to find out at a high-level what we can do. The sales guys then get our tech guys to with the junior engineers at firms and get into the real details. Once the tech guys happy the CTO is normally in.”

Question: Do your customers have the budget for this? How often do they have a specific budget carved out for your product (or substitute)?

What they mean

Investors are trying to find out how easy it will be to sell this product, this is particularly important for more enterprise type products.

If companies have an allocated budget for what you’re selling, it is far easier for them to be able to buy now, if they don’t you may have to wait a whole year before the next budget is made and an allocation may be carved out.

This basically means that your sales cycle is very long (which NO VC likes unless maybe your ticket is massive; Sequoia told me $200k min). In exceptional circumstances where there is a top-down mandate to make a big change then this may not matter, but that is not normal.

What you need to say

There’s no way of running from the truth, you either have a long sales cycle or not. Your customers either have a budget or not. What matters is that you understand this and how you’re going to manage it for you to hit your targets.

“It’s really interesting that you ask this. The manufacturing sector is under tremendous pressure right now since revenue is not increasing, the only thing that they can do is to decrease the costs.

There is a top-down mandate to do this and they’re looking at all potential avenues for innovating. We have found in some circumstances that our product has been pitched all the way up to the CEO. So, whilst there is not the budget specifically allocated, the usual rules for us don’t always apply since this is being viewed as of strategic importance. This, of course, we’ll not always be the case.

For the large manufacturing companies, they have general budgets for technology investments. So, we may not be able to sell them on more expensive products but we can certainly get into land and expand to eventually get a larger budget allocation. This is our strategy.”

Question: Why do people buy this?

What they mean

The investor wants to know what is amazing about your product and what compels your customers, and potential ones in future, to buy this rather than someone else’s. Why you are different now, and why you will be the winner is all they care about.

This is an opportunity for you to detail the wondrous things about your company and what your building. You can also take the opportunity to provide customer feedback quotes, which of course will be positive. This is a very open-ended question and so you should provide a focused answer.

Think about whom you are talking to. What do they want to hear? What do you want to tell them? Understand they may not know your industry so this is your opportunity to educate them (they love to learn). Ask first “How much do you know about the manufacturing automation space, so I can adjust how I explain this…”

What you need to say

“How much do you know about defluffing parrots?… Ok cool.

Customers face a lot of problems, the way they’re presently dealing with them is through Excel. Yes. I know this sounds crazy that multi-million dollar companies are still using Excel, but this is the case.

Of course, there are alternatives in the market. The big company is called SAP, it’s expensive, funky, many people find it confusing so they would rather stick to excel than shell out for something didn’t fit their needs.

So, if I were to give you one reason why customers are buying us, it’s simplicity. Our product is so simple when you are onboarding new employees, you only need to spend 15 minutes more to teach them how to use this to do that job.  This is huge for so many people! Imagine it!

We don’t have all functionality of someone like SAP, but that is exactly the product we built on purpose. Perfection is not when there is more to add but nothing left to take away.”

Question: What is the typical sales cycle?

What they mean

The sales cycle is one of the biggest reasons Enterprise sales companies die or even SME focussed startups.

If it takes too long to close a deal, it takes too long to keep you alive by putting money in your bank account and ramen in bowls.

If you have a long sales cycle investors will, rightly so, be very cautious. Even if your average contract value is high they still may not want to go into this business unless they see a real need and a high, long-term value.

I have many friends who have started businesses and have a sales cycle of over 12 months, if you don’t trust me trust them, they would never do it again!

Ideally your answer is going to be ‘short, a day!’ but that’s not always the case. Don’t drop a number bomb and leave it. You need to massage the number with verbiage (a sprinkle!)

What you need to say

The best answer is that you have a short sale cycle, but if you have a long cycle, you can’t hide it so you need to have a well-prepared answer of how you are already auctioning to bring it under control.

“We have only been pitching this to clients for nine months now, but we are starting to get some very insightful learnings about the sales process.

We have found that there are two categories of customers,

1/ Company set up in the past five years who are trying to innovate, and

2/ Legacy companies who have been in existence for 20 years and are very bureaucratic.

Unsurprisingly, the new companies are the one who have much more willing to adopt products like ourselves. We have found in most instances that we can go from first contact to implementation in about six weeks. For the Legacy type companies, we have found that it can take six weeks just to get decision-makers to give us a letter of intent.

What is logical for us to do then is to focus just on his newer companies build up our brand awareness and case studies we can then use those to go back to the fuddy-duddy companies and trying close them faster.”

Question: What is your lead velocity?

What they mean

Qualified Lead Velocity Rate is your growth in qualified leads month over month.

This is a telling number as it’s not a lagging indicator. For sales driven businesses such in some SaaS models, sales and pipelines are lagging indicators of what you have done. Lead velocity is current and is a predictor of future revenues and your growth rate.

If your velocity is higher than your desired MRR growth, you will hit your goals and vice versa. Key is the qualified nature of leads.

Fundamentally, investors are trying to understand how well you know the SaaS business and your metrics and the key constituent drivers. Since lead velocity is critical for growth, this is insightful for investors to understand if you will ever hit the targets that you have set in your pitch deck and financials.

What you need to say

“That’s an insightful question thank you for asking!

Of course, lead velocity is key for us to hit our goals being a sales driven organisation. We discuss this daily with management, and weekly with the team.

If we are not on track to get our qualified leads, there needs to be all-hands-on-deck to make sure that we get more leads in the funnel for a sales team.

If I think back over the previous six months with a goal versus actual, we have consistently hit between 100-110% of target.

You may be questioning if our goals are just low, but we have exceeded our revenue targets that we set with our investors in the previous fundraising round.

I think it’s positive to promise and over deliver.”

Question: How long does it take for reps to ramp and become fully productive?

What they mean

If you are a sales driven business, then you scale your business through more sales reps.

Since it takes time for sales reps to be fully productive, you need to hire in advance of your targets in order to hit them.

Investors are trying to figure out how methodical you are and planning your business, and are you currently above or below schedule, and what are the indications on costs?

If your plans are aggressive, then how aggressive are you with hiring talent?

There is also an element of churn in staff. If you have high churn and it takes a long time for staff to be productive, then you may need to hire multiple people on the assumption that only some survive.

Fundamentally this is a question of how well you understand your business and how you hit your goals, especially when you need a sales engine to ramp up.

What you need to say

“The longer we have been in business, the more data we have to be able to answer this question insightfully.

In the absence of data, we have relied on the experience of our VP of Sales, John. For similar businesses, he has found that it takes six months to hit quota.

What we have found in the past year is that it was taking us eight months. Since John came on board, it is taking us four months to hit quota for each new person that joins!

We are obviously quite happy with this but never satisfied. We have various initiatives underway to help our staff become more productive and hit their OTE which is good for everyone.”

Question: How productive are sales development reps?

What they mean

This is another probing question from investors to understand the performance of your organisation, and how effective the sales teams are since they are the key driver of your business.

The faster they can get staff to full productivity, the better you can hit your targets and the more responsive you can be to changes in the competitive landscape as well as up and down swings.

Clearly, if your sales team are not very productive, there are broader issues. What is your lead gen team like and are they feeding enough leads? Is the sales management team effective? Are you training the staff well and do you have a proper onboarding process?

The more of experienced investors will have benchmarks of what your numbers should be. So if your numbers are high above those you will be congratulated, or perhaps showing the door…?

What you need to say

“We had some issues four months ago with some sales reps not having cultural alignment and passion for the product.

Three months ago, we hired a VP of sales, John, and he cleaned house. It was painful but I believe we will be all the stronger for setting the foundation. This obviously meant that there was a nadir in our short-term.

We have started recruiting people with more alignment with our organisational culture and goals, and have found that we are exceeding the targets already of the people that we, unfortunately, had to let go.

On average our sales staff are hitting 70% of target and we are hoping for everyone to hit 100% of that in the next two months.

We have slowed burn in the mean time so we can nail and scale our model, before being distracted by having to onboard new staff”

Question: When are you hiring your VP of sales?

What they mean

The VP of sales is often a very important person in a start-up and sometimes can be viewed as a milestone; when the founder passes the torch to someone else to lead the growth engine of the company.

A bad hire can create a downward spiral, a great one can do amazing things for the growth of the company. Many a startup has come undone in hiring this critical role.

However, if you try to hire a VP of sales too early, many VCs will view this as you trying to shuck your responsibilities. First and foremost, it is the CEOs job to do sales. It’s only when you are ready to scale that you should hire a VP of sales.

Whatever you tell a VC, make sure to provide clear and logical reasoning. They can tell a lot about what you say, sometimes.

What you need to say

“Making a hire for the VP of sales is a milestone for us!

There’re still some critical things we need to do with onboarding Systems for us to make the investment in hiring one, as well as the broader team that needs to be there to make them effective.

We should have filled out are key integrations, which you can see in our product roadmap, in two month’s time. On the assumption that we will hit our targets, we need to start recruiting in the next month or so. This is, of course, something we would like our investors to help us with; finding someone brilliant!

In the meantime, I as the CEO, have been leading sales and will continue to do so.”

Question: Why did your last VP of sales leave?

What they mean

Did they?

Investors are always interested to hear if staff leave the company, particularly if their senior hires do.

This can be indicative of a bad culture, sales teams not hitting their OTE so not wanting since they don’t bank, conflict with management, such as the founders not being willing to give away responsibility etc.

You always want to be honest, as investors can check up on you. It is far better to control the narrative and massage it. Bear in mind they might just call up that old VP of Sales!

What you need to say

“John, our old VP of Sales, was introduced to us through one of our angel investors; they were friends since University.

John had previously worked for IBM as the regional head of enterprise sales in healthcare products. He had 600 people reporting to him with a secretary and various department heads. At presently we only have three sales people.

John is a fantastic sales manager, but at this phase of growth, we need someone who is more willing to roll up the sleeves and get things done. It was our mistake to hire someone with that much experience too early, and we would have much preferred to have hired John, in perhaps a year’s time. when we had scaled up more significantly. John sees the potential in our company and may consider coming back in future. Our bad.

We’re currently already in process with 3 other candidates, whom we think are all strong”

Question: How do you structure comp for sales reps?

What they mean

This question is largely trying to understand how well you understand your business, your unit economics and how to motivate people.

To answer this question, you just need to understand your business, how sales works and the logic behind how you do things. I know that’s sort of obvious, but you really know this stuff, or not?

Tip: Have simple structures. Sales people love to game them and the more complicated they are the easier it is to do. It’s also so hard for you to track. Also, change the structure depending on the levers you need to pull. Need more upsell, pull that lever.

Also, it’s great to talk about how you motivate people daily and weekly. Do you have competitions? Are there weekly prizes for the top closer?

What you need to say

“The simple structures are always the best. If you know salespeople, you know that if you have a complicated structure, they will find any way to game the system.

I reached out to one of my friends at another start-up similar to us and had a chat with their VP of sales. That was really useful.

We copied what they were doing with a few tweaks- why reinvent the wheel, right? We have too much else to do anyway.

We set quarterly goals of new customers they need to onboard and provide bonuses for upselling customers etc.

Is this in line with what you have seen other companies do. Do you have any best practice?”

Question: What is your pipeline like?

What they mean

Do you have a load of clients about to come on board that give your projections credibility? Investors like you to be more popular than Mary-Jane in high school.

Your pipeline is a leading indicator; it is also indicative of the numbers you’ll be hitting in the coming months/year. A strong pipeline is, of course, a positive thing.

If you’re focused on large enterprise sales and have high-growth, then you may start showing inflexion point, which you also may have been using to sell why you should have a large valuation.

In my personal experience, investors getting their head around the certainty of this pipeline may really be a deal breaker for you. Make sure to do some excel and break out your pipeline in detail if you have gotten to that stage of the process.

What you need to say

“We track our pipeline in great detail, of course, you can only be as certain as what our sales people tell us. I have short daily meetings with the sales team to understand what is exactly happening- I like to keep a pulse on things.

Generally, our leadership team is killing it! Since we really started taking content marketing seriously and implementing marketing automation, we have tripled our qualified leads. The sales team are obviously happy.

In the data room, we have provided a detailed analysis on the line by line basis of what we believe we will close in the next six months. In total, we have a weighted probability value of $15 million. This is 40% higher than our business plan.

We would be happy to go through this with the VP of sales in detail if you would like. He can provide more colour about all the clients we are talking to”

Question: Can this be done by inside sales? Do you have to do field sales?

What they mean

Sales are expensive! Field sales are the most expensive. Typically the salaries of field sales guys are the highest.

Phone sales can not only be cheaper in terms of salaries but also far more productive and scalable (for some time at least). If you can do things over the phone, your sales team can close far more leads. If it doesn’t work for you, you’re just not doing it right.

I have found that believing it will work and drumming that into the heads of your sales team is important. Steal guys from other companies that specialise in the phone and get them to teach the others.

You need to think very critically about how you acquire customers and the cost of those. Your acquisition costs will be a function of them and therefore your profitability. If you are a sales driven business, this is a key success factor for you.

What you need to say

“We originally believed that we could only close the restaurants with field sales, meeting them in person and developing rapport. We found out that in Germany, they were only doing sales over the phone.

We, of course, had to test this and find out for ourselves. We stole some guns from Groupon and Wimdu and tested this for two months and found it so much more productive than field sales, that we have stopped any field sales at all! We only allow field sales in the spare time of the more dedicated salespeople.

This, of course, doesn’t work for every lead, but it works for 60% of them. We put the 40% on a ‘to do list,’ for when we need to change out approach to capture more of the market.

So, what we are going to do is a land grab the 60%, then adjust our sales strategy as we see growth on the supply side slowing.”

[This post by Alexander Jarvis first appeared on the official website and has been reproduced with permission.]

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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