If you’re anything like me, you’re glued to the TV when an episode of Dragons Den or Shark Tank is on. For those of you unfamiliar with the show, it’s a show where entrepreneurs “pitch” their ideas to venture capitalists (dragons/sharks) in the hopes of walking away with some money and new partners.
Season after season, it seems that entrepreneurs on the show do not learn from the mistakes of those before them. Here are some of the lessons learned from The Dragons Den (or Shark Tank for US residents)
1. Know the value of your business – The number 1 mistake that entrepreneurs make when approaching venture capitalists is putting a crazy valuation on their business. There are some entrepreneurs who put insane multiples of annual sales on their company worth usually based on “emotional” value. Do the research and find out the accepted multiple of sales/profits for your industry.
2. Be prepared to give up 50% of your business – Every deal that the dragons are interested in, they almost always ask for 50% of the company. However, for some reason, the presenter always seems surprised by this fact. Investors want control or at least be a significant partner – be prepared to negotiate for it.
3. Know your Numbers and Details – This coincides with knowing the actual value of your business but one step further. Know all the statistics of your business, who your customers are, your annual sales/profits and expenses. Investors need to know the details of your business in order to evaluate the deal properly. As well, it shows that you are serious about your business and pushing it forward.
4. Get Sales – Before venture capitalists want to invest in your business, it needs to be proven. That is, it needs to have sales. How many times have people pitched an idea with zero sales to just have the door slammed on them. Go out and make contacts, get some sales/contracts, then look for additional capital.
5. Have a Good Story – Even if your business idea is mediocre at best, if you have a good story behind your pitch, it can turn a a maybe, into a possible yes. There have been numerous times that the Dragons invested in a business because of the person behind it and their story.
6. Know your Dragons/Investors – This is key for any presentation – know your audience. Know the businesses that the investors own and what they specialize in. With that, you can tailor your presentation towards the investor/dragon that would match your business best. Stroking their egos can go a long way.
Do you watch Dragons Den or Shark Tank? If so, what are your thoughts on the show?