[Guest post by Brant Bukowsky, the founder of GrowthPartner.com -- a firm that provides angel investment and online marketing expertise to emerging companies. A serial entrepreneur, Bukowsky and his team have built three Inc. 500 companies in the last five years. He blogs at Angel Investment Journal.]
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.
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Venture Hype has an interesting concept and an interesting format. It’s apparently well-read. Always good to be controversial and ask probing questions.
