The Sharks offer some great tips for raising money for your business. Here are 14 of them:
1. Be completely honest in your pitch. It may be tempting to stretch things when you’re raising money, but don’t. A lot of deals that are made on the show never get completed. My guess is that due diligence led to surprises and sometimes contradicted what entrepreneurs said. Trust is critically important to investors and the Sharks aren’t going to trust someone who doesn’t tell them the truth. We may agree on a deal, but it’s not done until I do my due diligence and we sign the papers.
2. Provide proof. When James Pittman, CEO of AIrBedz truck bed air mattresses, said he would use the money to hire a sales team, because that would drive his business, the Sharks weren’t impressed. He had no proof that would work. Entrepreneurs often talk about building a team and selling more products. Prove it. Test on even an extremely small scale, so you have more than your belief to back up why the money will drive revenue and profits. Small scale testing could be getting your product in a few stores, hiring a part time sales person, doing a limited ad campaign in a targeted geographic area and so on.
3. If you have low sales volume demonstrate scale. Low sales are bad. Low sales that prove a specific rollout will work is valuable when you are raising money for your business. This is similar to the prior piece of advice. It’s not: “we will sell more because we have director of sales.” It’s: “We will sell more because we have tested this one market and know we can rollout…”
4. Focus on the investor who knows your industry. The other investors look to that person for cues. For example, when the CEO of Duality Cosmetics was pitching her all in one nail polish bottle, Kevin waited to see if Lori was interested before he decided to make an offer. The expert in the group is the person you need to convince when you are raising money. If she’s out, the other Sharks are likely to follow.
5. Your first pitch won’t be your best pitch. I’ve found this every time I have been raising money for a business, or selling a product. So, find some local people to pitch first – other entrepreneurs and even your accountants and lawyers. Get practice. Based on their inability to answer some questions it seems like some entrepreneurs on Shark Tank didn’t find the right people for practice.
6. Present what you’ve achieved and not how much you’ve worked. These are business deals. It doesn’t matter a lot to an investor that you’ve spent two years of your life dedicated to your business. That isn’t relevant to the value they put on your business. They want to know what you’ve accomplished.
7. On the other hand, demonstrate commitment to your business. That means you don’t have multiple businesses and your attention is focused. They want to know that if they help you in raising money for your business, 100% of your time will be spent on growing their investment. Sharks specifically said this to Boot Illusions and inventor Jared Joyce (Five Minute Furniture).
8. Having spent a lot of money with little revenue isn’t a good thing. Entrepreneurs sometimes think it’s a good thing that they invested $250K and have $10K in revenue. The Sharks always look disappointed. They want entrepreneurs who have proven they are good at raising money with little investment. Then they believe their money will most likely be well managed.
9. Sob stories don’t help. These are business deals, and it probably results in worse terms, because investors know you’re desperate.
10. Know your market size. It isn’t every woman in America. There is a specific audience, and the sharks want to know what it is. Pretending it’s bigger hurts your credibility.
11. Don’t make absolutes. When people say, “I have to manufacture in the US” it bothers the Sharks. It is better to say, “I’d like to continue to manufacture in the US, because it will provide jobs and consumers appreciate that.” Stating it that way demonstrates that you’d be willing to listen to their advice – which you should be. Investors want to know that you’ll listen and be a partner.