I’m not talking about Googling your investors or memorizing their bios. Go beyond the basics and conduct in-depth research to get to know them and their businesses inside and out. This not only helps you prepare, but it allows you to evaluate the value each investor brings to the table in the short and long-term.
Almost everyone who walks into the tank does this. Each entrepreneur knows the sharks’ interests, likes, and dislikes, etc. and most of them even create custom samples for each judge.
A good way to get in depth knowledge about potential investors is by researching their partners and associates. Learn about the people they’ve worked with as well as the other companies they’ve invested in and see if you can incorporate their previous investment in your storytelling. I’ve also reached out to founders of the companies in an investor’s portfolio to get feedback / guidance from them.
Recognize it’s not just about the money
Cash shouldn’t be the only factor when fundraising and choosing investors. The network and industry-specific experience of the investors is equally, if not more, important.
One of my favorite Shark Tank moments was in season three, when Alashe Nelson of EzVip, a website that lets
people pre-purchase event tickets and bottle service, had to choose between two offers: one from Daymond John and Mark Cuban who had an offer of $150 thousand for 30% plus an A-list artist to be the face of the brand, and the other was from Robert Herjavec and Kevin O’Leary for $150 thousand for 20%.
Alashe decided to go with the first offer, even if it meant giving up more equity because he knew Daymond and Mark’s connections could add more value to his business long-term. And it looks like he made the right decision. EzVip received a lot of traction, and is now supported by recording artist, Pitbull. Daymond has said that it was one of the best deals he made on the show.
Determine how low you’re willing to go
Before going into a negotiation, you should know how much company equity you are willing to give up and stick to it. This will enable you to make decisions and counter offers based on numbers vs. emotions.
I always shake my head whenever I see entrepreneurs step out of the tank for a few minutes to think about the deals, only to come back and find out the sharks have either re-structured their offers or withdrawn them altogether.
I always shake my head whenever I see entrepreneurs step out of the tank for a few minutes to think about the deals, only to come back and find out the sharks have either re-structured their offers or withdrawn them altogether.
Knowing the lowest possible offer you’ll accept lets you stand your ground during a negotiation and keeps you from giving away too much of your company.
Remember investors invest in people, not just companies
When you walk into a negotiation, you’re not just pitching your business, you’re pitching YOU. You may have a wonderful product, but if you’re difficult to work with, you’ll be hard-pressed to find an investor who’d be willing to make an offer.
So be likeable and genuine. Show them your best qualities. Convince them that you’re worth the investment.
That’s exactly what Kim Nelson of Daisy Cakes did. Kim said she had the best cakes that the sharks had ever had, and she was right. Each one of them gobbled up her product. Unfortunately, she couldn’t convince them that her business was worth investing in. Everyone except Barbara Corcoran went out, saying that Daisy Cakes just wasn’t a big enough business for them.
Barbara Corcoran, one of the sharks on the show, had the same reservation, but made an offer anyway, because she believed in the product, and more importantly, in Kim. The others thought she was nuts. Kevin even called her a “crazy chick”, to which Barbara replied, “Not at all, I’m going get my money back; this girl’s a hustler.”
And she was right. Not only did Barbara get her investment back within three weeks, but Daisy Cakes went on to become one of her best investments.
Keep your cool
It’s very common for investors and entrepreneurs to disagree during a negotiation. And while there’s nothing wrong with standing your ground, getting hot headed is a different story. It’s okay to stick to your guns. Just do it with respect.
Some of the entrepreneurs on the show got offended when they were challenged with tough questions (such as market size, pricing strategies, etc.) or when the sharks disagreed with their vision – they lost their cool and that did not help them close a deal.
Consider what happened to Scott Jordan, of TEC (Technology Enabled Clothing). Scott already built a successful business that caught the attention of the sharks, but got into a heated argument about patents and licensing, and ended up saying “You’re out!” to the sharks. Needless to say, he didn’t walk out with a deal.
Never ignore a deal that’s on the table
Remember that adage about how having a bird in the hand is better than one in the bush? The same principle applies when negotiating.
When an investor gives you a reasonable offer (or the exact offer you asked for), it doesn’t help to hesitate, or sometimes, try to shop around more. You can offend your potential investor and hurt your chances of closing a deal.
This isn’t to say that you should jump on the first offer received. But if you have a perfectly good one in your hands, and the investor is someone that you actually wanted and can see yourself working closely with, then you should seriously consider it.
Case in point: Solomon Fallas of 180Cup walked into the tank asking for $150 thousand for 15%. Daymond John made an offer right away, and asked for 20% equity. Instead of taking it, Solomon said he wanted to hear what the other sharks had to say first.
Case in point: Solomon Fallas of 180Cup walked into the tank asking for $150 thousand for 15%. Daymond John made an offer right away, and asked for 20% equity. Instead of taking it, Solomon said he wanted to hear what the other sharks had to say first.
Daymond John, CEO of Fubu. (Photo credit: Wikipedia)
Big mistake. After his spiel, all of the sharks told him that they were out, and Solomon had to appeal to Daymond to put his offer back on the table. But by this time, the offer had been already revised and Daymond took an additional five percent equity making the deal $150 thousand for 25%. Solomon had no choice but to accept. I felt really bad for the guy and that is probably the fastest five percent he has ever lost – and that sucks.
Know you’ll never walk away with nothing
Negotiations with investors are never a waste of time. Even you don’t arrive at a deal, you won’t come out empty handed. Investors ask great questions and often challenge you to think about your business beyond what you’ve already thought of – the insights and advice you can pick up during a pitch and the negotiation process can be very valuable.
Don’t just walk into a negotiation for the sole purpose of getting an investment, also be there to learn. Keep an open mind. Ask questions. Internalize what the investors have to say, and if it makes sense, apply their advice to your business. When I was fundraising, I left each meeting with plenty of notes to reflect and follow up on. The best investors ask insightful questions that will force you to think even harder about your business. In my personal experience, Peter Lee, the managing partner of Baroda Ventures and the first institutional investor of Retention Science, consistently challenged me on our product market fit and scaling strategies over several meetings.
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