I have raised millions of dollars over the years for my clients and for my own projects. I can't think of a time when this question and/or topic was never discussed. So why do entrepreneurs have so much trouble with this question?
I think they are failing to realize that not all questions are treated equal in the eyes of an investor. Have you heard of the law of 80/20? Well that law pertains to investor questions as well, which means 20% of their questions illicit 80% of their decision making process. I know for most if not all investors this skin in the game question is in that 20%.
I also think that they are failing to put themselves in the position of the investor. The understanding of the rationale behind the question is as important as your answer to it. What would you want to hear if you asked that specific question to an entrepreneur? Put yourself in the shoes of the investor.
This is where you need to begin when coming up with an appropriate response. They're asking it for a specific reason and you need to be ready to address it with your specific answer. The way you answer this question is so important because it shows the investor how much thought and effort has gone into the entire business.
The investor already knows you are looking for money. No investor wants to lose money and they definitely go out of their way to limit the risk of loss. For this very reason they are already doubting your ability and are looking for any inconsistencies in your story. In other words their skepticism is at a all time high which means your answer needs to help put them at ease.
Regardless if you like it or not the investor feels they are in the power position. You need to understand this going into the funding meeting. Which means anything you say, how you act and your passion will dictate their perception of you as it relates to the handling of their money. You need to make them feel comfortable with you first then the business second.
Your answer needs to have depth to it. It needs to resonate with them on multiple fronts and address how much money you have invested into the project, your team has invested into the project, your vendors have invested in the project and any other monetary value that you can show. It needs to show you have just as much to lose in this business venture as they do.
It needs to resonate with the investor that no matter the circumstances that are going to come up over the course of the business that you will not fold, retreat or give up when things don't go your way. It needs to connect with the investor that you really thought about this answer and that adds validity to you and your business.
Which means you need to spend time thinking, crafting and practicing this answer until you have the best possible version of it. Be confident in yourself and share your purpose of why you need the money. Why you are going to work night and day until this business fulfills its highest vision. What separates you from all the other entrepreneurs looking for funding? What is your story and why are you going to make it when so many others don't?
You need to cut through the superficial answer and get really conscious about why you're asking for this money. The stronger your answer the easier it will be to get the funds you need.
I can tell you from personal experience that the investor will appreciate your thoughtfulness. They will become more engaged because you just separated yourself from all the other entrepreneurs who failed to take the time to really align themselves with the investor. The minute you do that the whole funding process will become a lot easier because people invest in people.