This is the second in a two-part series.

In Part 1, we took a look at how ABC’s reality show “Shark Tank” gets some key angel investment concepts wrong. In the second and final installment, we’ll offer five things the show gets right.

A Japanese import, “Shark Tank” has helped thrust angel investing and entrepreneurial spirit into the spotlight. The show throws hungry small business owners before a panel of self-made millionaires.

Entrepreneurs pitch their investment proposals and look for a specific dollar amount from the sharks. In return, the investors seek a percentage of ownership stake. The real-time negotiations play out in an ultra-public setting that, at times, makes for combustible debate — passionate entrepreneurs who’ve poured their lives into a startup rarely take defeat well.

Some of the show is closer to make-believe than anything resembling “reality” television. Valuations, time frames and negotiations are all warped or misconstrued for the benefit of the neat TV package.

But “Shark Tank” doesn’t get it all wrong. In fact, here are five things the show gets right about angel investing:

1. Points for Presentation

The Sharks don’t shy away from ripping an entrepreneur for a lackluster investment proposal. While some of the bluster is no doubt for the TV audience, there’s definitely a pragmatic foundation there. It’s seemingly common sense but needs to be reiterated: Presentation matters. One that’s cobbled together or that reflects a certain degree of seriousness, professionalism or general knowledge isn’t likely to inspire confidence or investment.

2. Smart Money

Entrepreneurs should seek smart money. The investor should hopefully be able to add value more than just the dollar investment. Small business leaders solely in search of dollars are almost always doing themselves a significant disservice. Some of the smart entrepreneurs target particular Sharks because of their past experience with similar ventures. Likewise, the Sharks often pursue a venture where they feel they can add significant value or will pass on deals where they have little to offer.

3. Smart People

Ideas without great management are not worth much. Talent is key and so is the ability to execute. Having IP may be the only other thing that helps make an idea valuable, but the IP is partly a result of execution and management. The Sharks are often wary of companies that lack a strong, visionary leadership who can generate results with the funding dollars. The general investor should be, too.

4. Valuations Vacillate

Valuations fluctuate wildly and there is no standard method. This can be seen in the wild fluctuations proposed between the sharks and the entrepreneurs. Entrepreneurs looking for a plug-and-play formula for valuations need to prepare for uncertainty.

5. The Elevator Pitch

There’s a duality inherent in “Shark Tank” when it comes to the pitch itself. In the real world, the thought of investors making a decision after reading a plan and listening to a few minutes of presentation is hard to fathom. At the same time, the show offers entrepreneurs solid examples of why cultivating a sharp “elevator pitch” is extremely important. It also illustrates how key it is for entrepreneurs to craft a compelling story for their vision.

Interested in submitting an article to Venture Hype? Just follow these guidelines to get your article featured.

This is the first in a two-part series.

ABC’s reality show “Shark Tank” has helped bring the concept of angel investment to the mainstream. Millions of Americans who had never even heard the term now tune in each week to watch hard-working entrepreneurs pitch their investment proposals to self-made millionaires.

In the show, entrepreneurs are forced to sell their ideas and themselves before an imposing panel of investors. These small business practitioners must ask for a specific amount of money from the investors, who in turn seek a percentage of ownership stake.

Entrepreneurs typically unleash a torrent of impassioned pleas, tears and promises of future profits. The sharks, meanwhile, poke, prod and push to find holes or weaknesses in business plans and revenue models, all the while jockeying for position on the really standout pitches.

In essence, it’s reality television at its tension-building best. Too bad it’s giving viewers a warped view of what angel investment is really about.

Here are five ways that “Shark Tank” gets it wrong, along with the bad lessons it’s teaching entrepreneurs and angel investors.

1. Pre- and post-money valuations

In one episode, an entrepreneur says he is seeking $250,000 and will give up 1/3 of his company. The investor then questions the entrepreneur, asking how he can justify a valuation of $750,000 when they don’t have much in sales.

Here’s the problem: The shark isn’t correct in his valuation. The entrepreneur is not valuing the company at $750,000. He is valuing it at $500,000. This is the pre-money valuation or the valuation before the investment. Once the investment is made, the company would be valued at $750,000 — with $250,000 of that coming from the investor. And that $250,000 would get 1/3 of the post-money valuation. So the entrepreneur should not be forced to justify how the company is worth $750,000.

Instead, he should need to justify a $500,000 current (or pre-money) valuation.

2. Wacky company values

In the same episode, the investor claims valuations are based on a multiple of revenue or profits. However, this is not accurate in a startup or early-stage company.

Valuation amounts are generally placed on other things such as management, market potential, intellectual property and a few other key essentials. Sales can help justify a higher valuation, but they are generally given very little weight for startups and early-stage companies.

3. Unrealistic time frames

On “Shark Tank,” investors and entrepreneurs shake hands and seem to agree on a deal very quickly. But deals of any real merit are very rarely done without a significant amount of due diligence to help verify claims, checking out the entrepreneur and other things common in any due diligence process.

The idea of a quick shake and a sudden influx of capital runs counter to the measured and deliberate nature of angel investing. Angels didn’t make money by blindly rushing into business deals while relying on gut instinct alone.

4. One-track negotiations

When entrepreneurs and sharks are negotiating a deal, the focus is entirely on the valuation of the company and the investment amount. While these are clearly important to both stakeholders, the terms of investment deals in the real world of angel investing include a wide array of other cornerstones. We’re talking about things like stock options, liquidation preferences and so much more.

5. Adversarial relationship

For the most part, “Shark Tank” makes it seems like angels and entrepreneurs are pitted against each other. But it’s really not a zero sum game. Both sides are fighting earnestly for the same thing — to build a successful company with terms that provide mutual benefit and long-term growth.

Stay tuned for Part 2 of the series.

Interested in submitting an article to Venture Hype? Just follow these guidelines to get your article featured.

As an angel investor, have you ever sat in a room listening to a pitch and have had no idea what the entrepreneur was talking about? Do your eyes glaze over while your hands reach for your BlackBerry?

So often, I find that entrepreneurs forget that angels are typically a little knowledgeable about a lot of things and very knowledgeable about nothing. If the entrepreneur is speaking “above” the audience but is still engaging, they may stand a chance of obtaining funding but it is doubtful considering the multitude of opportunities available for angel investment. It is easy of course to put all the blame on the entrepreneur but at the end of the day, we share some of the responsibility as well.

Lately, I have found a very effective way to combat this situation. It takes some effort but if you want to really give every pitch the full attention it deserves, it can be worth it. The vast majority of entrepreneurs submit their applications online via Angelsoft. This is a wonderful piece of software written by angels for angels.

Check with your angel group to get a schedule of presenting companies at your upcoming forum, log onto Angelsoft and see if the entrepreneur has uploaded a video or any other supporting documents. This is also a great time to review their application and do some very light due diligence of the people, product, competitors and industry.

We are all experts at using Google (although personally, I now prefer Bing) so now is the time to show off our skills. Take no more than 10 minutes to enter search keywords based on their application. Also review the company’s website and do a search for the founder/CEO. If you are going to hear 6 presentations, this will take no more than an hour which is time well spent if it enables you to engage proactively with the entrepreneur and ask probing, but appropriate questions during the Q&A part of the presentation.

Remember, it is the responsibility of both the entrepreneur and the angel to come prepared to the pitch!

VH: This is our last post until New Year. Happy Holidays to all venture igniters!

Interested in submitting an article to Venture Hype? Just follow these guidelines to get your article featured.