ABC's Shark Tank has been a hit since its inception in 2009, and has spawned a number of imitations. But what has surprised me is how it has also captured the imagination of emerging company CEOs. They ask me, how do I guarantee a deal on Shark Tank?
Here are four critical considerations that will get you what you want.
1. The Presentation
- You have to briefly present your product and service. Then you have to show how the company you have founded is organized to make money. That means showing you have accounting, sales and promotion activities already in place, the way a real company does.
- Don't get wrapped up in flashy demonstrations, like bathing suit models and furry mascots. A little goes a long way. Remember, you have the Sharks' attention just by being there.
- Show your commitment to the company, but don't think it's about you. Avoid long biographical sketches.
- Demonstrate your absolute command over the numbers--costs, margins and competitor price points.
2. The Valuation
- Understand your proposed valuation. That means, if you are asking for $200,000 for a 20 percent stake, your should know that it means you value the company at $1 million. Next question: How will investors get paid back their investment plus a fair return?
- Don't overemphasize how you can benefit from the expertise of the Sharks. It's assumed they have the knowledge, but they don't want to be used as a crutch. Let them sell their expertise to you.
3. The Negotiation
- It is always better to undervalue your company than to overvalue it. That way you will get more expressions of interest. More interest means that the Sharks have to negotiate with--or around--each other. This is always better for you.
- Don't go into a possible negotiation without having planned for alternate negotiation strategies. Winging it in front of sharks is never a cool play.
- Read the room fast. Mark Cuban, in particular, likes to make a quick offer and say you have thirty seconds to respond. If you think others are still interested, a possible verbal response is: "Why are you putting me, a potential partner, in the position to turn down possible positive outcomes?" After that question lands, be warned: you'll have not thirty, but ten seconds to accept or reject the offer, because if you don't, Cuban will cut you off fast.
4. The Structure
- Shark Tank is wonderful--and true to real life--in the way it portrays all the possible ways of funding a company. Loans are popular, equity stakes are common and you often see variations on these basics. Know what they are in advance. And..
- Do determine your true capital needs for the foreseeable future--say, three years. Then aim your proposed structure for that specific need. Because, God help you if you need more capital outside of what you project. The vultures will circle, and if the company survives, your future with it probably won't.
- Don't accept the frequent gambits of Kevin O'Leary, AKA Mr. Wonderful. He'll often request a that you pay him a dollar a unit for the rest of your life or some similar structure, which is not in keeping with the capital needs of a small and growing company. Investors such as Mr. W should have the fortitude to invest for a reasonable period of time. If the payback starts too soon (and immediately is too soon) it means the structure is for the benefit of the money man, not the company as a whole. Just. Say. No.
Do I guarantee a deal? Not really. It depends on your wits and your luck. But this is the preparation that will give you your absolutely best shot. And if this advice was helpful, please let me know!