The critically-acclaimed Shark Tank’s success in the search to invest in businesses and products America has to offer is not related with the Sharks’ dreams or business ideas. They already are billionaires. Basically, they are looking for innovation, ingenuity and the type of idea nobody thought about before, but most importantly, they want ideas that make business sense.
I have watched the show several times and they are pretty tough in their questions and comments. What makes the show so interesting is that they each approach the potential investment with their own perspective, concern, or vision. Candidates really need to be prepared for the unexpected question, and ready to hit the floor with grace if their idea gets whipped out.
But no matter what type of business they are evaluating, there is a string of thought that is almost always present: Who, what, why, when, and where? Yes, the famous five questions seem to take a new dimension when asked in the Shar Tank or any investors’ environment –a bank, a financial institution, an angel investor or any other possibility of getting funding.
1. Who are you and who believes in you?
Even if you have a solid business or business idea, investors would like to know the character of a candidate, his profile, integrity, honesty and commitment for what she or he is presenting or intending to do. Abuela will always believe in you but it is not a great asset in the investor’s view –unless she is one of your investors as well. Showing that you have a head on your shoulders and a drive for entrepreneurship might be more convincing than the idea itself. Business ideas change overtime, new products come along, spinoffs take place but entrepreneurs at the realm are the ones who make all of these changes happen to stay in the game.
2. What are you intending to do?
Now is the time to talk about your idea or business endeavor. Give details that make sense –they are not interested in what your neighbor suggested. They want to know how much research you’ve done in your industry; who are your competitors; similar products or services offered; and why yours stand out from the crowd –position among the competition. They might have heard about similar products that failed –in which case you need to know why and how you are planning to overcome that particular problem- or others that succeeded –in which case you need to explain how you are taking over their market share.
3. Why is your product or service marketable, and why someone else hasn’t thought about it?
This is a real tough question and it comes up often. In a way, it suggests that you are not that smart to come up with an idea nobody else thought about. Here, expand on the benefits of your business idea and what improvement, enhancing or upgrading you have introduced that will make a difference. Thousands of products each year are produced by just improving similar products on the market. If your creation is really innovative, explain how you plan to introduce it to the market –a hard challenge that can make or break many businesses.
With these two questions, basically they want to see your business plan. No serious investors will consider a candidate without a sound business plan that includes timetables, sales, profits, cash flows and return on investment (ROI). If you are just starting out, these numbers will be estimates and forecasts based on your knowledge of the business. If you are already in business, financial documents of your current operation will have to accompany the presentation. These documents will also include the amount of equity your business already has or how much “skin in the game” you are willing to invest.
A final word on funding: According to Luis O de la Hoz VP Lending Team at The Intersect Fund, most business owners fail at calculating the amount of money they really need to borrow as well as they have little idea how to calculate a ROI that will be attractive to potential investors. Do your homework, be mindful of your limitations and be honest with yourself about your capabilities.
Present your endeavor openly and with honesty. Savvy investors have a “sixth sense” to perceive who is and who is not a good candidate to receive their trust –and their money. After all, that is one of the reasons why they have become very wealthy.