Get all your fundraising questions in folks. This is one AMA you definitely wouldn’t want to miss out on.

For many startup founders meeting a VC for the first time, it’s a difficult experience.

Most of the time, when startup founders meet VCs, they are trying to pitch their new idea and sell it to the VC. It is vital to understand your customer based on his pain point:

Will I be able to make money from this investment?

Many of these VCs will be investing large sums of money into your company, and they’re justified in wanting to make sure they’re putting it in the right hands.

Enter Alexander Jarvis, founder of 50 Folds. He’s written an amazing article on venture capital funding, and he breaks it down step-by-step.

I’m going to try to break it down in this article so you understand what’s in store for his AMA, which will be be focusing on sales-related questions that VCs will ask.

When VCs ask about sales, they’re mainly concerned with four things: Your sales engine, sustainability, Product-Market fit and scalability.

Your Sales Engine

For early stage startups, it’s important to have a founder who can pitch himself and who has built a sales engine. Most of the selling at the early-stage will be done by the founder and his team. It’s important to demonstrate a clear understanding of the sales funnel your company uses and how effective it has been.

Ultimately, VCs are trying to figure out if you’re going to hit the targets you’ve set out; Your sales engine is a clear indicator of your ability to do so. As a direct driver of growth in your company, it determines the trajectory of your company’s revenue, and its ability to hit its goals and ultimately grow.

It’s important to know the effectiveness of your sales engine. In other words, how effectively have you utilised funding and resources to hit your goals? Is there a disproportionate relationship between the two?

Sustainability

Sustainability is important, because it determines the amount of risk your company will be taking on.

For B2B startups, a good metric to keep in mind here is that of the Sales Cycle. This refers to the average duration it takes your company to close a deal. Even if your startup has an average deal size of 1 million, if your sales cycle is excessively long, it represents a significant amount of risk, especially in terms of cash-flow.

For B2C startups selling subscription based products, a metric to look into could be your churn rates. The churn rate refers to the percentage of customers who stop subscribing to your service on an annual basis.

For those who are not a subscription service, an alternative metric to keep in mind would be the customer lifetime value (CLV). This includes the total amount the customer spends on your products over the course over the years and the customers he has referred to your service.

If your CLV is increasing or your churn rate is decreasing over time, this means that more people are seeing the value in your service. This translates to higher recurring revenue, and this is a clear indication of the sustainability of your business model in the long run.

Product-Market Fit

Product Market Fit can be thought of as the ability of your product to solve the pain points of a market, and the existence of an actual market that will buy your product. Does it fit the needs or wants in a given market? This is important because it will determine the ease of adoption and success of your product in your chosen market.

If it solves a problem, people will want it. A good metric to keep in mind here is your lead velocity. Lead velocity refers to the rate of growth of your qualified leads. These qualified leads are potential customers who meet your ideal customer profile. It is a clear sign of interest in your company’s product and the resonance between what you offer and what the market needs.

A great example of a company that has a great product-market fit is Uber. It offers a service that helps customers save time through the convenience it provides. That has been the driving force behind the company despite the numerous scandals and issues it has faced.

Scalability

Lastly, scalability refers to the ease at which you can increase the ability of the business to serve more customers and earn more revenue.

For B2B startups, a metric to keep in mind here is the time needed to ramp a sales rep. This refers to the time it takes for a sales-person to reach full productivity after being hired. VCs want to know what it will cost to scale the business in the long run, so if this figure is excessively high (meaning it takes a longer time to fully train a sales rep), it represents a significant bottleneck in future expansion plans.

Other metrics that a B2C startup can look at are customer acquisition cost (CAC ) versus the customer lifetime value (CLV). How would scaling the business affect your CAC? Would it remain the same or would you be able to enjoy new economies of scale?

These four factors — your sales engine, sustainability, product-market fit and scalability — are the main pointers that VCs keep in mind when evaluating startup pitches. Different VCs value each of the three factors differently, but it is important to know how your startup is doing in each.

If you’ve got any further questions, tune in to our AMA on our e27 Facebook page this month with Alex.

See you there!

The post TOP100 Academy with Alexander Jarvis: Fundraising Sales Interview Questions appeared first on e27.