I’ve been watching Shark Tank for 5 seasons straight and there is no doubt that half-way through my season streak, I already know what questions to expect to be asked by the sharks.
I’m a huge fan of the series and I believe its a great way to educate entrepreneurs about fundraising, valuation, patent, and product. Whenever I watch the show, I always put myself into the shoes of the investor trying to simulate that if I was on their seat, what would I ask to the entrepreneur? Every episode is a different product and every product is learning curve to know. I love the show because apart from just making your brain work on every pitch, you get to analyze why are the entrepreneurs not getting funded despite their sales.
Let’s face it, not matter how experienced the sharks are, some people get funded out of dumb luck or emotion. There is no perfect solution to fundraising however we can increase our likelihood of getting funded once we figure out the basics. I’ve been watching the show for 5 seasons straight and I now have a clear picture of an investor hat. Let me share to you some of those common questions they want you to answer. If you’re an entrepreneur, you may consider this as your small manifesto to prevent red flags in the future.
1. How much does it cost you to make?
This is basically figuring out wether your price point is considered profitable. The sharks would like you to run them down with your economics. Show them that your margins are reasonable and you could lower down the cost.
2. What are your sales?
It could be within a month, 12 months and your overall sales. If you’re not making enough from your asking price, expect Kevin O’Leary to say this:
Sales are the most evident proof when it comes to your business. Having high sales means your business is working and it should gradually increase. If they found out about the a decline along the way, prepare to get grilled about your strategy and remorse. Off course not all the time high sales means a good thing. At the end of the day its all about your net profit and without it... well… please refer to the previous picture.
3. How long have you been doing business?
The duration of your business is one way on how the sharks validate your performance. Similar to sales, this is for them to know wether you’re consistent with your progress, or made a pivot.
Some follow-ups include how long did you formulate the idea, tested the market (a.k.a proof of concept), and what were its results. If you’ve been operating for a long time yet your sales are bad, they’d grill you down until you shut down your business.
4. What are you gonna use the money for?
This is one of the most basic question that every investor will ask for even outside Shark Tank. Certainly before you raise money you should know how much you need and what’s it for. Sharks would rather see it on expansion rather than survival or inventory.
5. Why are you valuing your company $XXX?
Be prepared to defend your numbers. Back them up with evidences such as sales and traction. Although valuation should be considered to include your future potential, the sharks rather considers the value of your company of what it is today. One of the reasons why they increase their asking equity is because apart from just money, they also include themselves as part of that value. Their time, resources and energy are part of that equity pool so don’t be surprised if they suddenly became “greedy”. Not to mention if your business is not doing well yet they see potential in it, they would likely ask a controlling stake of greater than 50%.
6. How different is your product?
Another basic question for investors. You’ve got to prove that your product can scale and its not just a mediocre difference from existing products. Things like adding a beer holder to your arcade machine or a cover for a mug. Follow-up questions usually include “Who are your existing competitors”, “Do you have a patent?”
If you can’t prove your difference, here’s Kevin O’Leary’s famous line for that
7. Where do you sell and how do you acquire customers?
Sharks would want to know more in terms of geography. Some common mistakes were selling from point A yet would move completely to point B despite the working market. The way to convince them is if the market is established on point A, continue selling there then move to point B. Also, be prepared to answer about your customer acquisition cost. Get ready to defend those numbers!
Some differ from case to case. They also consider your strategy, trend of sales, team, need and how big is your market. “This is a X billion dollar market” is a line they’re tired of hearing of. When I meant the market size, I mean it should be applicable for everyone and shouldn’t be a niche.
8. How do you create and distribute your product?
With respect to the previous point, the sharks are eyeing towards the quality and distribution of the product. Is it hand-made? Can it be automated? Do you ship your own or do your have logistics in place? Since majority of Shark Tank entrepreneurs are on brick-and-mortar businesses, its essential to know how you handle labor and logistics. Just make sure you’re doing enough for your orders
I can place a whole lot more but the questions I placed should be enough to address the essentials of your business. Note that the key points are only based on my observations. It might be different from the ones you think but I’m certain that you’ll agree into some points.
Hope you enjoyed it!