Having a business that resonates with a potential investor is key to raising capital.
Many early-stage entrepreneurs seek out angel investors–high net worth individuals–to invest in their companies, typically in exchange for equity ownership of anywhere from 5% to 25%. But it’s not just an infusion of cash they want: Business owners also want angels to bring experience and contacts that will accelerate their companies’ growth.
The ‘Sharks’ on the popular ABC reality show Shark Tank are reflective of the overall private investor community. Reportedly, they have backed about 259 entrepreneurs that have appeared on the show, for a total of about $68.7 million in six seasons (show is currently in season 7). Reportedly, Mark Cuban has made the most deals of any Shark, with over 80 investments totaling more than $20 million, including black-owned fitness apps company Nexercise.
So, if you are an entrepreneur headed for Shark Tank, here’s the bait you’ll need:
Passion: Bring your business to life with your energy. Barbara Corcoran looks at how much genuine enthusiasm the person has for the product. But Daymond John notes fast talking should not be confused with passion. “Let investors see you are doing what you love.” Cuban likes to hone in on a unique quality about the company and the person running it: “I want to invest in both.”
Knowledge: One of the biggest mistakes a business owner can make is “not knowing the company and its numbers inside out,” says Cuban. An investor will reject a business idea if the owner “is not prepared and is not realistic about their business or industry.” Be prepared to answer questions, advises Corcoran. For instance, what are your sales? Did you generate revenues? Have or will you turn a profit? What are the margins for your industry? John adds, “Investors want to see that all line items are being addressed, such as are you paying yourself a salary.”
Vision: Prove that there is market demand. Besides making a presentation, try showing a prototype, or handing out product samples, provide results from research or knowledge you’ve acquired from surveys, focus groups, and product tests.
Sustainability: Demonstrate how you intend to grow the company. “How is the business scalable?” asks John. Investors gauge their return on investment based on a company’s potential to achieve high-growth, strong market position, and sustainable competitive advantages. Also, investors don’t want to see the management team is too thin or inexperienced to handle the company’s expansion.
Honesty: Don’t try to hide any problems with the company. Just be prepared to discuss how you plan to solve them. “Don’t tell me about sales and patents only for me to learn the patents are pending, and when I look at the books I see that you have $400,000 in loans outstanding,” cautions John. Investors give money to entrepreneurs who appear trustworthy and transparent.