Shark Tank on Raising Capital
Shark Tank on Raising Capital
As an entrepreneur, you need to be one multi-faceted son of a gun. Part inventor, part salesman, part people manager, part accountant. And to be truly successful, you’ll ideally be master of all trades, and jack of none. Hence why there seem to be 100 failed entrepreneurs for every one that truly makes it.
Unless you’re the heir to your spinster Great Aunt’s fortune, or managed to hit the Spot 10 jackpot on Keno, raising capital is perhaps the most important (and often most disagreeable) part of the entrepreneurial process. It requires the entrepreneur to transform into both an educator and salesperson. It challenges them to prove their worth in what can sometimes be a pressure-cooker situation. And it’s often what separates the entrepreneurial wheat from non-entrepreneurial chaff.
Nothing demonstrated this more clearly than the display I was witness to yesterday.
It was a re-run of the American version of Shark Tank. Two rather twitchy physicians wandered onto the screen. They were brothers who had come up with RoloDoc, a self-described game changer in the field of medical communication. After making a few awkward jokes about medical communication being stuck in the 80s (complete with a theatrical toss of a pager), they introduced their system.
What transpired next was almost impressive, in that they managed to talk for six straight minutes using nothing but buzzwords. I’m struggling to even remember if they used a conjunction like ‘and’ or ‘but’. The Sharks stood mouth agape, as the doctors managed to say absolutely nothing despite talking for half the length of a quarter of basketball. They then duly got torn to shreds by the sharks, who, it seemed, didn’t get their name because they’re gilled or can regenerate teeth.
It brought home to me the importance of communication when trying to raise capital. You may well have the greatest idea in the history of the world, a game changer, but if you can’t adequately convey the vision – both the basic concept and how you plan to deliver it – you’ll need to seriously adjust your expectations, or find other, less entrepreneurial avenues to follow the idea through.
Shark Tank is an interesting example of the capital raising conundrum, because it condenses the process down to such a punchy, TV-friendly bite. It may be compacted, but the Shark Tank model still largely reflects the standard methodology of raising capital from investors. You find potential investors, you pitch your idea to them, you attempt to answer their questions, and then, if all has gone rosily, you negotiate an investment deal. Hypothetically, preparing for a Shark Tank presentation shouldn’t be too dissimilar to preparing for any presentation to raise capital.
So, using the framework of Shark Tank, what makes for the perfect pitch?
Noted 19th century French nerd Louis Pasteur, who we can thank for everything from vaccinations to bottled milk, once proffered that ‘chance favours the prepared mind’. Preparation is key to nailing your Shark Tank pitch. The sharks will bombard you with questions in an effort to see both how well you know your business, and how coolly you perform under pressure. If they sense a weakness, they’ll go for it like sharks. It’s all there in the title.
Practice your pitch, whether it be in front of a mirror, camera, friends or family members. Ask yourself the curly questions before you present. If your business plan has potential holes, be sure to identify them before your potential investors do, and be ready to show them how the negatives could become positives.
Would you invest in a mumbly, sunken-chested entrepreneur who treats eye contact as if it’s a leading conduit of venereal disease? To those who said yes, I’m starting to question whether you’re an investor at all.
Humans are highly attuned to one another’s body language. Just as a pack of dogs will be led by the pup with his chest out rather than the one with his tail between his legs, your investors want to see a confident, straight-spined, shoulders-back, looking-you-dead-in-the-eye type entrepreneur. This body language will give off a sense of authority and self-assuredness.
It’s also surprising how much of an effect our hands can have on an investor’s perception of our entrepreneurial worth. Expressing a rise in profits and sales by miming an upward trend with your hands can make an enormous amount of difference to the impact of your presentation. There’s no need to Marcel Marceau your entire business strategy, but using a few actions to accentuate your words will make your message far more memorable.
Giving your potential investors something to play with is also a proven strategy – if your audience gets to touch and experience your product on top of hearing about it, they are far more likely to feel a connection to it.
This is where our Doctors from earlier really fell down. Instead of directly answering the potential investors’ questions, they fell back on buzzwords like ‘social media’ and ‘brand awareness’. It was the sort of conversation that you’d expect from a drunkard at 2am – ‘I’m going to wait until you stop making noise so I can say what I wanted to 3 minutes ago’. At times it was as though they were involved in a completely different conversation to the one that the sharks were trying to have.
Listen to you investors’ queries, and answer them as best you can. Sometimes the answer will be ‘I don’t know’ or ‘I’m hoping that you can help me with that’. That’s fine. If you’re talking to successful investors, I can guarantee that they’ll value honesty in a potential business partner far more than they’ll value an ability to answer a question like Donald Trump.
Just as the Brothers Grimm used stories to deliver a message, so too should an entrepreneur. Stories offer potential investors insight into the way you operate. They can showcase some of your best entrepreneurial assets, and give examples of how you can successfully tackle problems. Prior to pitching, be sure to think up a few stories that demonstrate your worth. These stories should be ones that:
- Demonstrate determination
- Show problem solving
- Indicate demand for your product or service
- Showcase unique talents that you bring to the table.
Perhaps you have a story of how you came up with an idea, or noticed a gap in the market. Maybe you have a story about how people are clamouring to get a hold of your product and service. A real-world tale goes a long way to earning respect and interest from potential investors.
Plan to be Low-Balled
So you’ve got an offer – congratulations! But instead of getting $500,000 for 10% of your company, an investor has offered $200,000 for 20%. What the hell?
Good investors get to that position by being good business people. That means getting as much as they can for as little as they can. If you receive an offer, you are almost guaranteed to be low-balled initially. You need to plan for that. And you need to be confident enough to push back, and deliver a sharp, yet fair, counteroffer.
As a rule, reality TV shouldn’t be used as a flawless depiction of the real-world. But where the lovers’ trysts seen on The Bachelor are about as fabricated as most of the contestants’ noses, Shark Tank does at least offer a fundamental – if embellished – insight into the art of raising capital.
If there’s anything we can take from the show, it’s that communication is paramount. Some entrepreneurs are born with the gift of the gab, while others have to work hard to gain it. But far more important than being a smooth operator is having a solid knowledge of where your venture is at, and where you’d like it to head.
The free market is an ocean. Your business is a guppy. It’s a scary, unpredictable world out there.
There’s a lot to be said for getting friendly with some sharks.