Entrepreneurs looking to raise angel or early seed funding can learn a lot watching entrepreneurs pitch wealthy investors on ABC’s prime time show, Shark Tank. In each show, the lessons come fast and furious for the observant. In fact, the show is such a good primer in pitching to, and negotiating with, early stage investors that I ask the founders of the high performing companies in my Venture Accelerator program to catch the lessons served-up in every show.
Shark Tank features five wealthy investors, including billionaire Mark Cuban, who listen to the entrepreneurs short pitch, then ask some pointed questions, and then either make a bid or pass on the opportunity. The investment level is generally in the $100K to $300K level, although occasionally deals are for more money. Typical pre-money valuation for the companies range from like $200K to $1MM.
Like all “reality shows,” there are some made for TV type moments. But, I find the show to be very representative of the investor dance with early stage companies. Here are four learning points, for entrepreneurs, that come through vignette, after vignette.
- Your personal likability is as important as your product or service – Investors are, first and foremost, investing in YOU! Smart investors cherish their time and most investors want to invest their time with people that they will enjoy being around. Investing in a business with a great product (or service) and a royal PitA owner has zero interest for savvy investors. On Shark Tank, you will see the investors, who see this situation, propose a 100% buyout. Proof they want nothing to do with the entrepreneur, even though they like the product.
- Personal commitment to success of the venture is critical – Investors don’t want to be baby sitters. They want to know that their business partner is going to get up every day thinking and doing with respect to the business. Hearing about other passions in your life is a big turnoff for most investors. The Shark Tank investors, like most successful investors, are very focused, driven, high performers. They have little use for entrepreneurs who do not demonstrate being equally driven.
- Being able to show progress, of some kind, is very important – No matter what stage of your business, investors want to see evidence that you are successfully overcoming hurdles. They want to know that you have attempted to get revenue traction. And, that when you encountered roadblocks (which you will!), you have found a way to keep moving forward.
- You don’t have to be a business genius, but you do have to understand business basics - You are asking investors to invest in a business. Successful businesses are run by people having some basic business acumen. Not having a grasp of profit margins, costs, etc. is a sign, for investors, of likely business failure. Get smart about business basics. You need not have an MBA, but, at minimum, you must be knowledgeable about basic business concepts.
What is amazing is that these four basics show up as causes of investor disinterest, week after week. And yet, each week a new investor shows up and displays behaviors inconsistent with these basics. Week after week!
Entrepreneurs (and those contemplating being early stage investors) tune in. Set aside your judgment about a given product or service. Instead, focus on the process of investor inquiry. Watch these savvy investors test for these basics. Every single pitch!
Don’t let any one of these four basics derail your quest for funding. Not with one single potential investor. Master these basics and accelerate your success!
After you have watched a couple of episodes of Shark Tank, I hope you will share with me how the show has sharpened your fund raising skills. Connect with me and join the the venture conversation on Google+.
Dave Carpenter is a prolific author, inspiring speaker, and well-known consultant to professional service firms. Besides writing regularly for this blog, Dave’s writing can be seen in leading business and personal development publications. Dave is also the leader of the Accelerate Success mentoring program where he mentors high performers in a unique program designed to do great things for the favorite charity of each participant. If you are (1) a high performer who believes you still have untapped potential, and (2) passionate about a favorite charity, you may want to learn more about this powerful program. You can also follow Dave on Twitter, on Facebook, and/or on Google+.