6 Strategies to Answer Tough Investor Questions
By Joe Teklits
Investor meetings require extensive preparation, including scripting answers to a variety of potential questions and creating profiles that outline the investor’s background, competitive share positions, and focus areas. However, even the most comprehensive preparation can’t cover every possible question that could arise during a meeting.
Most investors and analysts will stick to the predictable questions that focus on business, revenue growth, and market dynamics; however, you will always likely face a few unexpected queries. For example, an investor may hear a piece of misinformation from a third party and use your meeting as an opportunity to explore it. Some investors might dig into minute details of a company’s product or a detail from a recent industry event, asking questions that go beyond the CEO’s or management team’s direct knowledge. When these situations arise, the surprise of being caught off guard can undermine confidence and threaten credibility.
Obviously, preparation is key, but it’s impossible to prepare for every question. Below are a few proven strategies to help your team navigate tough questions and keep investor meetings on track.
- Be Honest
In some sectors, like high-tech, meetings between savvy investors and company management teams can resemble a Ph.D. review board. The CEO may very well be the right person to run the company, but can sometimes lack the level of technical expertise required to converse about R&D or the intricacies of the engineering behind a product. If an investor asks questions that go beyond you or your team’s technical expertise to answer, then don’t just wing it. “I’m not sure of the answer to your question, but let me check with our CTO and get back to you” is a better response than talking around the subject or being inaccurate. Investors can sense if you’re making it up on the fly, so avoid answering erroneously and damaging credibility. Do, however, make sure to follow up with the answer to that question in a timely manner.
- Keep Your Answer High-Level
You may not want or be able to answer every question with specifics. For example, an investor might ask when you will need to raise additional capital. While you may have an internal sense of timing, absent a decision by the Board to take any actions, you are not required and would be best suited not to be specific on that timing.Instead, offer a high-level answer. You might say, for example, that you continually evaluate ways to create shareholder value while also managing your balance sheet. Explain that while future growth initiatives could require funding, you are cognizant of not diluting existing shareholders. You will need to tailor your answer depending on your cash and debt positions, but don’t be afraid to keep it appropriately vague.
- Opt to Not Comment
Investor meetings are sometimes an opportunity to try to validate recent rumors about your company, especially surrounding its leaders. For example, investors may want to know if your VP truly has accepted a position at another company or if your CEO is planning to retire. You aren’t required to answer every question, especially if it is rumor-based, and should use a consistent reply regarding not commenting on rumors. Situations like these are extremely common; leadership teams are routinely changed and refined. Rather than address a rumor directly or reveal information you aren’t ready to release, keep the discussion high-level. Emphasize how the team — not the individual — functions, interacts, and works within the organization.
- Reference the Industry Data
Coming to the meeting with solid knowledge of industry data can help you navigate tough questions that might otherwise cast your company in a negative light. For example, in the biotech space, an investor might ask if the company has experienced any device failures. While all medical technology companies’ products experience some level of failure, this can still seem like a delicate subject to broach.In situations like this, industry data can provide valuable context. Referencing average failure rates for your sector would clarify that you’re within or below the industry average. You’re not trying to hide a failure, rather your job here is to quash the notion that this isolated incident is indicative of an ongoing problem.
- Hear Them Out
Occasionally, an investor may use the meeting as an opportunity to vent his or her frustrations. For example, if he is underwater in the company’s stock, he may choose to publicly air those grievances rather than ask a relevant question. This can put you in an awkward position, and you may feel that the appropriate response is to cut him off or encourage him to move on to a valid question. However, it’s best to simply let him speak. Once the investor gets everything off his chest, you’ll be able to move on amicably.
- Don’t Completely Avoid the Competition
Sometimes investors use your meeting to ask questions about competitors. Although you may want to keep the discussion focused on your company, your investors are looking to determine if you have a good understanding of your market and competitive threats. This isn’t the place to trash your competition – in fact, you should never speak badly of competitors in this environment – but it is an opportunity to show you understand the landscape and to differentiate your company from the pack.
The more questions you can be prepared to answer, the better. However, by keeping these strategies in mind, you’ll be well positioned to field any question that comes up. To learn more about preparing for conferences and investor meetings, contact us.