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23 funding lessons for budding entrepreneurs and startups from Shark Tank

The show Shark Tank has some great business lessons for budding entrepreneurs and startups looking for funding and talking to investors for the same.

The show Shark Tank, where aspiring entrepreneurs from around the world pitch their business models to a panel of investors and persuade them to invest money in their idea. The show Shark Tank has some great business lessons for budding entrepreneurs and startups looking for funding and talking to investors for the same.

1. If you get what you ask for, take it.

Mark Cuban offered one entrepreneur exactly what he requested. The entrepreneur then asked for more and lost the deal. No one likes to do business with someone who gets what he requests and then asks for more; it’s a sign of what’s to come in the relationship.

2. Networks matter.

The Shark Tank investors bring huge value in their networks. Daymond John got the sticker guys distribution in Best Buy as well as retail distribution for Nubrella. Lori Greiner is able to help the businesses she invests in get on QVC. When you’re looking for investors understand their networks and more importantly if they’re willing to leverage them for you. Ask about this before you sign a deal. Sometimes a deal with less lucrative financial terms is better if it brings the right network to the table.

3. Do your homework.

When Mark Cuban negotiates and tells you a deal is final, he means it. You won’t have the benefit of seeing most people you’ll negotiate with on TV in advance, but you can still do plenty of due diligence — like researching their past deals and talking to their business partners.

The most successful entrepreneurs also know enough about the Sharks to customize their pitch. They tell each one why he or she should personally be interested in the business.

4. Get an advisory board.

Getting a Shark to invest in your company is one way to get partners with experience and a network, but not everyone can be on Shark Tank. Creating a strong advisory board can also increase your opportunities; for a small amount of equity you can build a great board. Retired executives with extensive networks are often eager to get back in the game and make tremendous advisory board members.

5. Know your absolute bottom going into a negotiation.

One entrepreneur was offered a deal and needed to think about it. By the time she decided to move forward, the Sharks had talked among themselves and reduced their offer. If she knew her absolute bottom going into the show, she could have made a decision on the spot and had a better deal.

Too many entrepreneurs are unsure of what they’d accept and their hesitancy gets them worse deals. Also, if you don’t know the lowest offer you’d accept, you could commit to something you’d regret later. Of course, there may be exceptions if unexpected elements come into play, which sometimes happens on Shark Tank.

6. Solve your own problems.

The most successful founders built companies to solve problems they faced. They’re building for a market they understand and are passionate about. A couple examples are Travis Perry who developed ChordBuddy to help his daughter learn to play the guitar and Eric Corti who invented the Wine Balloon to better preserve wine after he and his wife opened a bottle.

Of course, the problem you’re solving has to address a sizable market. No Sharks wanted to invest in Ledge Pillow because they didn’t think the market was big enough. (A great example of solving a problem comes from these teenage entrepreneurs who developed a life changing device for wheelchair users).

7. Investors buy into people as much as ideas.

The Sharks get most excited about a passionate, likeable entrepreneur. Be honest. If that’s not you, and you need investors, consider finding a partner who fills this role.

8. Do a deal that works for everyone.

The Sharks often say they won’t invest in something because they don’t have the right background or connections to help the business. If you’re looking for investors, try to find those that can help you by serving as more than just a bank. In any deal, whether it’s related to VC or not, make sure both sides provide value. You’re probably going to do more deals in the future, and a one sided deal won’t be good for your reputation.

9. Listen.

The Shark Tank investors offer great advice when they turn people down. If you’re told “no” don’t be so displeased that you can’t listen to the rationale. And, if they don’t tell you why, ask so you can leverage that advice moving forward. This is a chance for insight from experts.

10. Don’t respond to people you’re pitching with disdain or sarcasm – even if they say something nasty.

The people who do, tend not to get deals. How you act in a pitch will shape what potential partners think it would be like to work with you. In fact, maybe they’re pushing you just to see how you’ll react under pressure.

11. If you can’t sell, learn to.

This lesson is for everyone. Even if you’re in a large company, you need to sell your ideas and yourself to get ahead. In the case of investors, Sharks are looking for people who can sell. And, business valuations are significantly higher when someone has revenue. Do whatever you can to get sales prior to approaching investors. Mark Cuban stresses that selling is one of the most important skills for entrepreneurs in his great book, How to Win at the Sport of Business.

12. Prepare.

Many entrepreneurs on the show who don’t know their financials or seem to freeze up in the middle of their pitch. When you’re going to a meeting or pitch, practice enough that you can talk about your business even in stressful circumstances and please know your financials. The most successful people are usually over prepared.

13. Demonstrate your commitment.

Investors want to see that you’ve taken a risk – investing your money and time — showing that you believe in your business. Don’t ask for their money if you haven’t invested yours.

Failures are ok — they can even be a benefit if you show how you learned and moved forward. If you could use some inspiration, here are 23 famous failures who used failure to get to success.

14. Patents are extremely valuable.

A worthwhile investment if you have something unique.

15. Have options.

You can almost always tell when someone believes they have no other options. Those entrepreneurs get a worse deal than they’d otherwise receive. Whether you’re selling a stake in your company or buying a car, you need alternatives to get the best deal. One alternative is knowing at what point you’ll say “no.”

16. Ask, “Are there any other offers on the table?”

Some people have gotten much better offers when they ask this rather than responding to the offer that was given. Like anything, the more competition you can create for your business, the better deal you’ll get.

17. Don’t quibble over small numbers.

Some deals get lost because someone is dickering over 1%. Don’t do it.

18. Ask for something valuable . . . besides money.

Steve Gadlin and Mark Cuban were negotiating an investment in Steve’s business, I Want to Draw a Cat for You. When the financial terms were on the table, Steve asked Mark if he’d draw and sign every 1000th cat drawing. Mark said “yes.” It was easy for Mark to say “yes,” and it will add value to Steve’s business. Look for opportunities where the other side can provide additional value without any out of pocket expense.

19. The right partner offers more than financial terms.

There are some great businesses that are giving up huge chunks of equity for a seemingly small amount of money. Kevin O’Leary bought into Talbott Tea at what seemed like a great valuation for him, but within a short period of time he had the business packaged up and sold to Jamba Juice. When you do a deal with a Shark you’re giving up more than you’d offer someone else, because they can exponentially grow your business faster.

20. Don’t tell potential investors they’re wrong.

When you tell Sharks they’re wrong – especially in front of other people (like the national TV audience of Shark Tank. they will naturally stop listening to you. No one wants to be told they’re wrong in front of other people. Instead, say, “I think that . . .” or “What do you think about looking at it like. . . .” How you defend your position makes a difference.

21. If someone asks you to sell him something, ask, “Why do you want it?”

Daymond John challenged an entrepreneur to sell him a pen. The guy did a good job, but could have done better. Instead of jumping right into selling the pen, he could have asked Daymond what he was looking for in a pen and customized the pitch.

22. Find investors who are passionate about your business.

The Sharks gravitate not only to the businesses they like but the ones that they’re passionate about. Kevin O’Leary invested in the tea company (loves tea); Daymond John in the trash can cover company (he said he had just lost his own garbage can cover); and Robert Herjavec in the guitar learning company (he has a lifelong dream to learn guitar). Those entrepreneurs were solving problems that the VCs personally experienced. Do research to find partners passionate about what you do. You’ll have a higher likelihood of making a deal.

23. More Sharks are better than one.

Every investor will bring a different network and expertise to the table. Jewelry company M3 Girl Designs, founded by Maddie Bradshaw when she was 10, was offered $300K from Lori Greiner and Mark Cuban. Maddie said she’d take the deal if they’d let Robert Herjavec in as well. She got the same financial deal with one additional investor. See if you can increase the parties who have a stake in your business. (Update: although M3 Girl Designs was offered the deal during the show, the deal didn’t wind up going through.)

The art of crafting successful elevator pitch

Don’t get stumped by the phrase “elevator pitch”; although the two words don’t seem to be made for each other, in the startup business an elevator pitch is what makes or breaks an investor.

Don’t get stumped by the phrase “elevator pitch”; although the two words don’t seem to be made for each other, in the startup business an elevator pitch is what makes or breaks an investor. An elevator pitch is mainly the ice breaker between the investor and the startup team.

The elevator pitch can be considered a manner of selling a startup, because in the elevator pitch one is required to give a brief synopsis of what the company actually does. An elevator pitch is quite important as it bridges the investor and business.

Now the reason why it is called an elevator pitch is because it is like a casual conversation which one may have when riding the elevator and the ride itself lasts for a minimum 20 to almost 30 second and during that span of time, you are required to make a memorable and lasting conversation with regards to the business. It has been seen that the time span during which an investor can be swayed is 20 to 30 seconds.

Hence an elevator pitch should be precise, interesting and retainable. You cannot use heavy jargon which will confuse the investor. The trick is to keep it simple. Understanding the USP or the unique selling proposition of the business is the key to crafting the elevator pitch. If you don’t know what the company does then how can you expect others to understand it in less than a minute?

While simplicity is important you must understand what sets you apart from the many other similar startups in the niche. Always do your homework about similar businesses – you never know what kind of question one may be asked. Being prepared at all times is what makes a good elevator pitch and practice only renders its perfection.

Image credit: www.spinyard.com.au

When is the best time to raise money for your startup?

Before you read this, you should be aware that I am an entrepreneur who has never raised money from VCs. Two of my three companies were bought while we were still closely held. In the third, we were unable to raise money and eventually got acquired before we could raise institutional money. Therefore, if you are looking for advice on how and when to raise money from VCs, I am less qualified than hundreds, perhaps thousands of entrepreneurs who have raised funds from VCs in India.

That said, there were times in my entrepreneurial career when I asked my mentors when is the best time to raise money. Some said that the best time is when you do not need it, and that made a lot of sense at the time. On the other hand, some said I should not raise money unless I needed it, and that made sense as well. However, some of the people who gave me the first advice were the same as the ones who gave me the second advice. And both times, they made sense. There are times I have said the former to an entrepreneur seeking my advice and the latter to another entrepreneur, or to the same one at a different time.

How can two exactly opposite things make sense? Welcome to the world of entrepreneurship. Here’s how!
We are currently in a time when actively raising money is going to be perceived as a sign of weakness. Liquidity is low, markets are volatile, there is a backlash of the hyper-funding of 2014-15, the pendulum is swinging the other way and the momentum is in the opposite direction. It is taking longer to raise money and you have to part with a larger portion of your company for the same money as the same time last year. Trends suggest it might get worse. If you know money is not as cheap anymore, why would you expose yourself to that environment unless you absolutely need the money? And if it is true that you do, investors would obviously have leverage over you and are likely to dictate terms. Therefore, do not raise money unless you really need it. If you need it, force yourself to come up with a plan in which you don’t. And if you still need it, be prepared to dilute.

When markets were up, up and away in 2014-15, there was a lot of new money and liquidity floating around. Tech companies were getting listed, stocks were flying, and money from entrepreneurs and investors was flowing back into the ecosystem. Investments were chasing entrepreneurs. Money was chasing ideas. Lesser so now. It is more likely that investors over-allocated last year and are waiting to sell off some shares at the right price, than investors who are still chasing deals with a fear of missing out on the next big thing. If you are one of the rare startups that is on fire right now and you are being called upon by multiple investors competing to invest in you, it might be worth raising money at your own terms. Because if you do, it would be a bigger competitive advantage than the same time last year. Besides, today’s non-event of raising money quickly would mean you are over-achieving the target and saving time and effort of a planned event in the future. Therefore, raise money when you do not need it.

Hopefully, this context helps understand how two exactly opposite things can both make sense.

Most entrepreneurs reading this would fall into neither category above. Most startups will neither be desperate to raise money nor will they have a bidding war escalating in their parking lot. Then what should their fundraising strategy be? For what it’s worth, my answer is don’t raise money right now. Build your product, build your team, build your user base, build you revenue pipeline, build whatever it is that is most important to your startup right now.

Last year was about putting your mouth where the money was. This is the year of putting your money where your mouth is.

Author: Kashyap Deorah

Kashyap Deorah is the author of recently released book – The Golden Tap, the inside story of hyper-funded Indian startups. Kashyap is a serial entrepreneur who has spent the last 15 years in India and Silicon Valley. During this time he has started and sold three companies. He is an angel investor in over 20 companies in India and Silicon Valley. Deorah founded Chalo, a payments app which was acquired by OpenTable in 2013. Prior to that he founded Chaupaati, a phone commerce marketplace, sold to Future Group in 2010.

Five keys that every investor looks for in a start-up

Here are a handful of the things that most investors look for in promising startups. Which do you find most valuable, and which do you believe are irrelevant?

As an entrepreneur who’s looking to attract funding, it’s imperative that you understand what investors are looking for in start-ups. By getting a clear idea of what investors want to see, you can better frame your pitches, and guide your conversations to encourage positive outcomes.

The Importance of a Formula

Ask any investor what they look for in start-ups with high growth potential, and they’ll begin to rattle off a list of trademarks that they search for and red flags that they avoid. While they may not refer to their process as a formula, that’s essentially what it is. If you want to be a successful start-up investor, you must follow a formula. That’s the only way to keep your emotions in check, and make sound decisions that are likely to deliver high returns.

There’s no such thing as a perfect formula–and most undergo frequent changes and tweaks–but having a process will help you to identify profitable opportunities that others might miss.

Investing in an unproven business is a lot like betting on a sports team to win. You can study the trends, and look at historical data points, but you’re always taking some kind of a risk. If you want to learn about investing analytics, study sports handicappers.

As an investor, the takeaway is simple: don’t listen to what everyone else tells you. Do your own research, develop your own formula, and put your money where you believe it’ll deliver the highest return. Your investing formula is the only thing that matters.

Five Keys That Investors Look For

With that said, you need to identify important keys, and give appropriate weight to the different factors that you deem valuable. In no particular order, here are a handful of the things that most investors look for in promising start-ups. Which do you find most valuable, and which do you believe are irrelevant?

Strength of the Founding Team

There are certain elements of a start-up that can be fixed and others that are unchangeable. The makeup of the founding team falls under the latter category. You can’t force change upon a startup’s founder. They either have what it takes to be successful, or they don’t. An entrepreneur may have all of the knowledge necessary to launch a venture, but do they have the passion to navigate through difficult seasons? A founding team may be capable of creating colorful presentations and well-worded briefs, but do they really understand what’s happening at a foundational level?

As an investor, one of the first things you need to consider is the founding team. Look at their history, ability to lead, incentive to succeed, and overall versatility. If you don’t feel good about the founding team, you can’t be confident in the future of the business.

Clear and Unsolved Pain Point

The next thing that investors turn their attention to is the pain point. Any time you’re studying a new start-up, ask yourself three questions in regards to the value offering:

Does the product solve a palpable pain point in the marketplace?
Is that pain point widespread and relevant?
Are there currently any other solutions?

If you can answer “yes” to the first two questions and “no” to the last one, then there’s a clear, unsolved pain point. This is promising, but it doesn’t mean that you’ve found a start-up worthy of an investment. You’ll now need to turn your attention to the actual product.

Sales Momentum and Sample Data

Investors want to be sure that a start-up will be successful before investing money in the venture. One of the best ways to do this is by studying past performance. While past performance isn’t always indicative of future success, it’s generally a good indicator.

You can look at any number of metrics to determine success, but analyzing sales momentum in the form of data is the most objective method of studying success. If the start-up has been in business for any amount of time, they should be able to supply you with this data.

Long Term Business Model

A start-up can have the right people, a palpable pain point, and some sales momentum, but you’re investing in its future growth. What happened in the past does very little to deliver a return on your end. That’s why you need to study the start-up’s business model, and consider its feasibility.

Does the business have the right structure? Is the business plan accounting for future competition? What are the three, five, and ten-year goals? If you want to feel confident in the long term growth of the business, you need answers to questions like these.

Fair Valuation

As angel investor Basil Peter points out, “Over-valuation is one of the most common structural problems angel investors encounter.” If you over-value a start-up when you present an investment, you’ll find yourself swimming upstream for years to come. The negative repercussions of over-valuing are hard to overcome.

While a founding team obviously wants to attract as much capital as possible without giving up more equity than they feel comfortable forking over, the reality is that the investor often does the entrepreneur a favor by correcting the valuation. They may not like the fact that they’re getting less capital on the front end, but it’ll save a lot of headaches down the road. With that being said, make sure that you only invest when the valuation is fair for all parties.

This article was originally published in Inc.com

Image Credit: http://www.businessinsider.com