Investments

We Can Shop Sharp Tank

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 7 minute read

It’s no longer true, and it may have never been true, that “if you build it, they will come.” Countless ideas for improved methods of doing things or novel goods never leave the thoughts of their authors because of a lack of resources.

There must be a way to acquire funds for this, but where to look for guidance on how to do so remains a mystery. Consider the programming of a premium cable channel.

Enter Shark Tank

The ABC reality series “Shark Tank” features five private investors, or “Sharks,” who meet weekly with entrepreneurs seeking venture money. The idea was taken from the strategy used by unaffiliated investors (“angels”) to find promising startups early on in their development.

The “Angels” invite a select group of qualified business owners to a meeting where they each have a set amount of time (often 10–20 minutes) to pitch their venture. Like in the program, the setting is both thrilling and tense.

Candidates pitch their business or product and are questioned by the Sharks, who may agree to the terms the entrepreneur has set out, make a new investment offer, or reject the idea altogether, based on the quality of the presentation.

Investors are aggressive, suspicious, and frequently disrespectful; bids are just a part of the money that are asked, and may include onerous restrictions as a precondition; presenters rapidly understand the realities of hunting for investment funding. Sadly, some business owners actually do end up losing command of their enterprises. Although the format is exciting to watch on television, it can be very stressful for those taking part.

It is difficult to obtain investment capital.

The chances of successfully raising money to start a business are astronomically low in the actual world, often exceeding 100 to 1. To attract investors, a business owner has to:

  • Committed. Investors may be pompous, harsh, and controlling, therefore business owners require a thick skin. As politeness is not a prerequisite to becoming a successful investor, a presenter should not be shocked, outraged, or distracted by rudeness when meeting with possible investors.
  • Persistent. Even the products and services pitched on “Shark Tank” have a low chance of being financed after just one meeting. A standout episode from the 2012 season featured businessman Eric Corti, inventor of the Wine Balloon, a device that employs a hand pump to evacuate the air from an opened bottle of wine, therefore extending its shelf life and preserving its flavor. Two of the private investors were keen to get in on the Wine Balloon action right once, and they put up a bid to buy the business for $400,000, which was ultimately approved. None of the money or property ever changed hands, however, as depicted in the episode. The product remains Corti’s, and he has formed a new corporation to sell it online. This is a typical result, as the check will only be fully funded when it has cleared the bank.
  • Prepared to Commit One Year Searching for Financial Support. It may take a year or more to secure funds following a presentation. It takes at least 60 days from the time an investment is accepted for the money to become accessible, as reported by Venture Den, a platform that links entrepreneurs with investors. Timeframes of this nature might easily exceed four months. Seeking out private investors for startup funding requires being practical about how much time and energy will be required.

Shark Tank Suggestions

Regular viewing of the show, and taking note of the triumphs and failures of the other presenters, may teach aspiring business owners a great deal about attracting investment funds. You may increase your chances of success with both “angels” and “sharks” by following these five guidelines:

  1. Maintain Your Cool

As the presenter, you should always maintain your professionalism, politeness, and attention to the audience, regardless of the conduct of the capitalists. Even though it may make you feel better in the moment, responding poorly to terrible treatment with similarly awful behavior will get you nowhere.

Determine the true intent of a question. Consider if your presentation sufficiently addressed the intended market and the approach to produce revenues if, for instance, a possible investor claims he doesn’t see a market opportunity. If you receive feedback like this again, consider making changes to your presentation before your next chance to present.

Fundraising is a lot like running in a presidential primary: not everyone will support you, and even people who support you might not vote for you. Make adjustments as needed, refine your presentation so that it excites your audience, and eliminate any skepticism they may have about your firm, its products, its market potential, or your ability to achieve your goals as a team.

  1. Keep the Golden Rule in mind.

Investors, however, have their own version of the golden rule: “He who has the gold makes the rules.” Most creators and business owners credit their original concept as the driving force behind their company’s success.

The value of an untested product or concept is less important to investors than the value of the cash they may invest in it. Consequently, founders might feel confused or even angry when a potential investor demands a far larger stake in the company than the founders are willing to give up.

During the first season of “Shark Tank,” Kimberly and Matthew Foley pitched their idea for a children’s gift business called Wee Can Shop. They presented a deal where an investor could have a 30% part in the firm for $200,000, valuing the business at $666,666 even though it had only made $13,000 in profit the year before.

Their bid placed a greater value on the firm than 51 times its yearly earnings, a metric used to measure the worth of a corporation. Publicly listed specialty retailers fetch prices of 12 to 16 times profits. If the same valuation methodology were used for the Wee Can Shop, the business’s current worth would be estimated to be between $150,000 and $200,000.

The Foleys didn’t get any offers or words of encouragement from the investors because of the huge overvaluation.

  1. Beat the Two-Minute Timer!

Most of the hundreds of venture capital presentations that active private investors watch or hear each year are not of interest to them. Therefore, they can only pay attention for a couple of minutes at a time.

Expert presenters are confident public speakers who command attention, inspire trust, and make their audience feel at ease. Excite your audience with a working model of the product, a live presentation of the product in action, or eye-catching visuals.

In season three of “Shark Tank,” for instance, Raven Thomas pitched her chocolate-covered pretzel business, the Painted Pretzel, and asked for $100,000 in exchange for a 25% stake in the firm. She showed off some of her chocolate and explained how she had to turn down a $2 million sale to Sam’s Club because she didn’t have enough money on hand to fulfill the order.

Investors were blown away by her excitement and the sample, and once Sam’s Club expressed interest, the Sharks made her an offer.

  1. Recognize Your Market

People’s interest in a new product or service is often exaggerated by entrepreneurs’ enthusiasm. However, investors, who tend to be more realistic and gloomy than sponsors, oftentimes fail to recognize opportunities where the latter do.

Season one introduced the concept of coffee shop franchises that double as community legal clinics, an idea first proposed by Jeff and Annie Hughes. The financiers had doubts about the concept because of the low cost of legal services available online, the need for distinct sets of talents to run a café and a legal firm, and the possible licensing issues from governments and professional bodies. A lot of people had doubts as to why a lawyer would invest in a franchise rather than just opening a competing business.

The business owners strongly disagreed with the professionals’ worries, yet they still didn’t make a deal. The coffee shop has been open for business for two years, but no franchises have been sold.

  1. Be Willing to Discuss Command

Many people who create businesses or design new products are hesitant to hand up the reins to anybody else for fear that their “baby” may be mishandled or stolen. On the other side, investors worry about losing money and want a say in how the business is run. They are destined to clash with one another.

Stuart and David Pickoff, two brothers who appeared on the second season of “Shark Tank,” offered a 10% stake in their mobile entertainment firm for $500,000. With 140 franchises in 28 states, the firm made $125,000 in profit on sales of $3.5 million last year. One of the “Sharks” made an offer of $500,000 for 51% of the business.

Unfortunately, the brothers would only sell a 49% stake in the program, so they walked away from trying to secure financing. According to the company’s website, the number of franchisees has dropped to 130 as of March 1, 2012, a decrease of 10 sites since the show’s airing.

Bottom Line

You may walk in the door with a great product and a detailed, realistic assessment of the market prospects and daring strategic objectives, but you can’t clinch the deal and secure the funding without extensive preparation and a professional, memorable presentation.

Take Season 3 host Dave Meyers as an example. He had a great idea for a product (a water bottle that could be disassembled from both ends for simple cleaning) and a reasonable assessment of the company’s worth ($60,000 for a 5% stake).

Bill Walton, a seven-foot-tall NBA Hall of Fame basketball player, dressed up as a huge Clean Bottle replica and supported the product to kick off his presentation on the show. Due to his success with the Sharks, Dave was able to secure funding for his business.

Curated posts

Someone from Milwaukee, WI just viewed Best Online Colleges for Electrical Engineering