10 Tips on How to Pitch to Investors Effectively Based on Shark Tank Show
Pitching to investors is always a challenge, even without being in the Shark Tank limelight. Apart from entertainment, the Shark Tank TV Show broadcast on ABC provides great business lessons both for entrepreneurs who managed to actually pitch their business to the sharks on the air but also for founders who are just considering taking their business to the next level by obtaining funding from angel investors or venture capitals.
Since the sharks are not actors, but immensely successful multi-millionaires and billionaires (including Mark Cuban, Barbara Corcoran, Lori Greiner, Robert Herjavek, Daymond John, and Kevin O'Leary, and at times some guest sharks) who invest their own money without having a pre-prepared script, they act very naturally during episodes, giving tons of business tips, which in turn is the show's greatest asset.
After analyzing numerous episodes of the Shark Tank show, we’ve garnered pretty substantial expertise on how to pitch to investors effectively. Drawing conclusions from the collected data, we present them as 10 super useful tips on how to score a deal not only with the Shark Tank sharks but with any other angel investor as well.
Table of Contents
- 1. Be self-confident to make the best possible impression
- 2. Think of yourself as a winner.
- 3. Show a proven track record to gain trust and credibility.
- 4. Know Your Numbers.
- 5. Be super prepared to justify your valuation.
- 6. Negotiate with investors.
- 7. Don’t be emotionally involved in your business.
- 8. Always remember what value the sharks bring to the table.
- 9. Never ever give up.
- 10. Listen carefully to any criticism and answer it adequately.
1. Be self-confident to make the best possible impression
While pitching you need to realize that, for the most part, the first impression is a decisive factor which is why the first seconds matter most. Make sure that you project an image of a successful person who is collected, level-headed, self-assured, and no matter what always keeps a cool head.
Additionally, it would be good to take care of your appearance as your posture, gestures, tone of voice, or clothes, all in all, your energy, need to pinpoint an impression of a person that is in line with how you would like to be perceived. Many people think that these elements are insignificant details, but it’s the total opposite. They can make or break a deal. Starting from the attitude and parlance and finishing with facial expression and appearance, all of these elements must reinforce your main message, namely, you are the first prize and the shark who does a deal with you will be a winner.
As Robert Herjavec, one of the Shark Tank investors, put it in his book “Driven: How To Succeed In Business And In Life,” “I can tell within the first thirty seconds whether I am likely to entrust my money to the individual making the pitch, even before I hear a description of the business needing investment. It’s not just nervousness; it’s something intangible: a blend of confidence, assurance, and even a bit of swagger. When we see it, we know we are dealing with someone driven to succeed; when it’s not present, we become less confident about the entire deal.”
However, if you are aware that you are doing a great job, but you are not happy about the impression you make and this is the only thing standing in your way to success, you can work on it as there are some rules which you can learn and follow to sell yourself better and make a great first impression.Back to top
2. Think of yourself as a winner.
As can be seen, to win this game, it’s essential to have the right mindset. You need to believe in yourself. You need to start with what you feel and think about yourself and your beliefs about success. If you want other people to believe in you, first you need to believe in yourself. Your conviction that you can win needs to be unshakable, as it is highly apparent on your face, in your voice, generally, in everything you say and do.
You need to feel like a successful person the moment you step into the Shark Tank show as the sharks have so much experience reading people that they can immediately notice who is in front of them. When you are able to do this, the dynamics of the entire meeting change. So stop begging for their money and start thinking of yourself as a business partner and decision maker offering the sharks a viable investment opportunity. When sharks recognize the true value of your business and begin to perceive it as a window of opportunity to make a lot of money, they can finally start competing with each other for a chance to invest in your business.
Indeed, it also happens that a shark likes someone's personality, motivation and dedication so much that he or she decides to invest more in a person than in a business. How you think, in particular, your mindset, skills, and character should appeal to sharks as it happens that they decide to invest in a business largely because of the founders who have very unique character traits and can become the engine of any business.
For example, Mark Cuban decided to invest in Jiggy, a puzzle company, mainly because of its amazing founder, Kaylin Marcotte, who showed ingenuity while bootstrapping her business. When Mr. Wonderful, Kevin O'Leary began to question Mark's decision, he stated that he believed in Kaylin so much that he was ready to pivot in the event of a business failure. Apparently, determination, zeal, and persistence can work wonders.Back to top
3. Show a proven track record to gain trust and credibility.
Don't come empty-handed, but show that you've already been successful. When you have proven yourself successful in a particular field and have previous achievements such as relevant experience, great sales, or some past businesses, it is much easier to gain the credibility and trust of the sharks, ultimately leading to a deal. By showcasing your good track record, you show that you are determined, committed and purposeful. That's when the sharks begin to realize that you are willing to go to extreme lengths to achieve your goal even against all odds, which is most often the case when starting a business.
When you show that your words are backed by actions, the sharks see that you are ready to make even greater sacrifices to speed up the game and achieve further goals, along with the sharks as business partners. The sharks like to invest in companies with strong sales figures, great potential for success and scalability, run by people who are tenacious, persistent, and ready to go the extra mile, even when they have to put their nose to the grindstone.
To give you money, investors need to believe that you are able to run your business and make it successful. By presenting your experience and knowledge and proving that you know your business inside out, you gain credibility. A great example of a person who managed to build incredible credibility is Dr. Anika Goodwin Hilderbrand. She is an ophthalmologist, who founded the company OpulenceMD Beauty, selling magnetic eyelashes, and focused on the health and safety of the eye. When the sharks found out that Anika is an eye surgeon specializing in eyelid procedures, tumors, and fractures, it gave her so much credibility in the eyes of investors that she finally persuaded Kendra Scott to invest $100k in exchange for a 20% equity.Back to top
4. Know Your Numbers.
After watching a few episodes of Shark Tank, you quickly realize that the sharks are always asking for numbers, so you need to know your numbers back and forth to appear confident when talking about them. Since the sharks have been angel investors for many years and have heard hundreds of pitches, they can smell deceit miles away. Therefore, it pays to know your stuff, to have some reliable data and metrics down pat. As the sharks invest their own money, they want to learn the basics of your business, especially Key Performance Idicators (KPIs) such as revenue, sales, costs, debt, and inventory.
The following questions come from the show “Shark Tank”:
- What are your sales like?
- What were your sales last year?
- What was your profit on that ….. million sales?
- What percentage of the buyers are repeat buyers?
- What are your shipping costs?
One of the key metrics that the sharks pay attention to is revenue and sales, which is very important as it is one of the primary components of revenue. Revenue is deemed as the lifeblood and the driving force of any business as it reflects the entire income, including not only sales, but also fees, or royalties that the company generates from its core operations before subtracting any expenses. However, sales performance is usually the most critical as the sharks use it to evaluate the company's overall valuation and verify if it is reasonable or completely off base.
It’s necessary to make sure that you not only need to deliver a nice pitch, but you need to back it up with bona fide facts and figures ready, knowing how exactly you arrived at them. Furthermore, you also need to know them inside out so that you can answer each and every question about them with flying colors and present your idea as a sound and solid business with great potential.Back to top
5. Be super prepared to justify your valuation.
Valuing your budding business is for the most part a challenge as you don’t have a great deal of historical financial data to back up your valuation, but you need to be very well-prepared as the sharks ask the question about valuation very frequently, trying to find out more about how you got to the final number. Given that founders tend to be overly optimistic, investors usually challenge the current valuation by asking questions that often expose facts as to why the value of the company is significantly lower. Usually, this point is made in a very direct manner.
For example, Kevin O’Leary, famous for his explicit and forthright language, openly stated in one of the Shark Tank episodes: “The value that you are telling your business is worth is insane.” Therefore, it is good to be prepared for such statements, having a well-thought-out answer to the following question: Why is your company’s valuation so high? There is an almost 100% chance that your valuation will be considered too high so you need to be ready to defend it.
The best way to properly answer this question is to back your valuation with the sales results. This strategy was used by Kaylin Marcotte, the founder, who was seeking $500,000 for a 5% stake in Jiggy, the company making puzzles with a staggering $10 million valuation. When Kevin Harrington asked her: “How did you get to this valuation? Because it really is very intimidating.” She replied: “We just launched nine months ago. In the last nine months, we have done 1.6 million in sales. This year we’re gonna do 2.25. We’re profitable.”
All in all, your valuation must be based on facts that reflect reality. Especially when you don’t have such sales figures like Kaylin, it’s necessary to provide the sharks with realistic data showing that your valuation is conservative and down-to-earth.Back to top
6. Negotiate with investors.
Founders often tend to be unrealistic about the potential valuation of their business and are overly optimistic about the market and potential gains, but primarily they lack negotiation skills. Even though more and more show participants are learning from the mistakes of their predecessors, most of them are totally unprepared to counter an offer that is on the table but seems to be unacceptable to them. Generally, it’s critical to be aware that investors may try to leverage their advantage as the stronger party and offer deals that are less than beneficial to the pitchers.
However, those who are savvy enough to reject the initial offer and counter it to defend their business by negotiating with investors like a pro on a level playing field can eventually end up with a very good deal. Interestingly, the sharks presumably value such behavior as they know that on the other side of the table there is a real businessman with strong character, the right mindset, and mental power who refuses to accept a mediocre offer, always striving to maximize the benefits. The sharks are looking for just such a person as a business partner.
One of the founders who can be a role model in negotiations is Jonathan Miller, a former VC guy, who set up a company producing customized energy bars. Not only did he come to the Shark Tank show equipped with all the essentials for success such as a can-do attitude, passion, attention-grabbing pitch, and numbers, but also great negotiation skills. Jonathan’s brilliant pitch triggered a hot response from the Sharks who asked plenty of challenging business-related questions. His well-thought-out pitch made a huge impression on the Sharks and eventually, Kevin Harrington made Jonathan an offer to buy the entire company for $150,000 with a 4% licensing fee.
However, the founder of Element Bars refused to accept the offer, instead replying that the sale of the company would demotivate him. As this response hit Kevin’s home, he made an offer for just 35% of the company plus the licensing arrangement. As a great negotiator, Jonathan didn’t just say yes as he realized that maybe he can do better than that. By countering for 25%, he controlled the entire negotiation process, eventually saying yes when the Shark suggested splitting the difference and landing at 30%.
Jonathan showed extraordinary negotiation skills, and what’s more, he could use them to his great advantage, saying: “In these negotiations, you see how I’m also going to act on your behalf when I’m negotiating with someone else. I don’t want them to walk away with the rest of the company if it’s a supplier or it’s another equity partner after you trying to dilute you.”
Another great example of remarkable negotiation skills is the aforementioned Kaylin Marcotte, who was seeking $500,000 for a 5% stake in Jiggy, but when Mark Cuban didn’t want to invest as he thought that 5% was not enough to risk his money, she asked him “Is there a percentage that you would feel you had skin in the game and could be a partner for me in this?” Even though Mark suggested 15%, which was more equity than she was willing to give up, she knew what she wanted, which is to find an experienced partner who could help her develop her business, she accepted Mark’s offer. Additionally, at the eleventh hour, she managed to make him match her fundraising efforts. Ultimately, Kaylin ended up with Mark Cuban’s offer of $500k for 15%, which was a huge success.Back to top
7. Don’t be emotionally involved in your business.
Everyone knows that emotions are a bad adviser, especially in business. So why do so many founders keep making the same mistake of being so emotionally involved with their business that clouds their rational thinking, leading to them rejecting the Sharks' offers they should have accepted?
Unfortunately, lots of businessmen attach their entire identity to the original idea and call their company their “baby”, making it difficult for them to think logically and limiting their ability to spot the mistakes of the venture. Moreover, their emotional engagement also makes them vulnerable to both legitimate and unjustified criticism from investors that may catch them off-balance or, worse, upset them.
Obviously, pitching to investors, especially in front of cameras, is mostly a challenging situation that puts founders under enormous pressure making them stressed and prone to emotional reactions. However, to do a deal, not any deal but a good deal, you must not let your emotions obscure your judgment and keep your head in the game. In fact, keeping a level head when faced with frustration, disappointment, anger, or worry can be more than a challenge.
All these emotions are present during the show, which makes it even tougher and brain-busting, mainly because the sharks do not make things easier, or even make it more difficult, in order to get a better deal, as well as to see how their future business partners react to being maneuvered into a tight corner. For instance, Patrick Gaskin and Tom Clif, founders of 'Cardly', who appeared in the Australian Shark Tank, were seeking $250,000 in exchange for a 7% equity stake in their personalized card-sending business. They exemplify cold blood and level-headedness as due to their exceptional skills and abilities they did not let the sharks throw them off balance, even though the sharks tried to question the valuation of their company by all available means.
For instance, Steve Baxter offered the founders 270k for a 33.3% stake, justifying his offer as follows: “You’ve got nothing at the moment. You’ve got 30k bucks in sales. You spent 55 grand to get where you are right now. I think I’m doing you a big favor.” Even though the offer lowered Cardly’s valuation from 3.57 million to merely 750,000 and was not very attractive, the founders didn’t lose their temper for a second, get ruffled or rattled, but they calmly responded “It’s a lot more than we’d be prepared to give away today. We know that this business has got great potential,” as they were certain of the company’s future scalability.
Further negotiations were even tougher when Naomi Simson questioned the founders’ interest in finding an investor, saying: “I hate the valuation. Seven percent. That says to me ‘we weren’t really looking for an investor.’” Even under these difficult circumstances, Patrick and Tom didn’t lose their composure and replied: “There may be a little bit of wiggle room in that but not to the extremes of 30%.” What’s more, they have shown that they are seasoned negotiators who are ready for making reasonable concessions, but at the same time realize the value of their business and do not fall for unfavorable offers, setting clear boundaries.
According to Rober Herjavac, “successful entrepreneurs treat businesses like commodities. (...) You buy or plant the business, you grow it until the price is right, and you sell it to the highest bidder.” This is only possible when the founders are not emotionally involved in their businesses. In fact, any business should be based on numbers that result from unemotional calculations.
Consequently, the key to success is the ability to stay calm and keep your emotions in check. It is especially critical when the sharks are trying to undermine your valuation by saying that it is “crazy”. You can’t let them rattle you. Be prepared for this statement and try to understand the investors. By putting yourself in their shoes, you can understand that their reaction is not personal. This is just the element of the negotiation game that everybody plays in the show, trying to get leverage and gain the upper hand in order to pay the lowest possible price for an equity stake in your business. When you look at the situation from this perspective and stop taking each comment personally, it will be much easier for you to keep your composure.Back to top
8. Always remember what value the sharks bring to the table.
The founders come to the Shark Tank show to cut a deal, but those who actually get the offer should not only analyze it in terms of financial performance but also pay attention to who is making the offer as the sharks bring not only money as an investment but also enormous intangible value, such as experience, contacts, or knowledge of the industry, basically things that are difficult to buy. So if you are hesitating whether to accept an offer or not, obviously the numbers are important, but you should always consider each offer together with some added benefits which the sharks contribute by joining a business.
For instance, the founder of "Brand Yourself", Patrick Ambron, learned this lesson the hard way. He was seeking 2 million dollars for a 13.5% equity stake in the company, so his valuation of the business was exorbitant, nearly 15 million dollars. The only offer he got was from Robert Herjavec who offered $2 million for 25%. Even though the offer was one of the biggest offers on the show, Patrick declined it as he was unable to make a compromise.
Right after the show, he said it was a hard, but good decision, but when he gave some thought to it, he began to regret not accepting Robert’s offer, as he realized that the sharks brought not only money but a lot more to the table. Therefore, he decided to learn from his mistakes and use his experience in Dragons’ Den, the British version of Sharks Tank. On the show, Patrick was very transparent about the US deal's misjudgment, saying “In retrospect, I didn’t know that there was extra value in having a shark.” All in all, Patrick and Nathan Evans received 3 offers and eventually entered into a deal with Peter Jones who invested 100K in return for a 2% stake.Back to top
9. Never ever give up.
At times, it may happen that your business idea neither gains the Sharks’ recognition nor wins over their hearts. Much as the situation seems really hopeless, you need to put on a brave face and never give up. When the odds are stacked against you, that is the perfect moment to show how determined, tenacious, and strong-willed you are and how hard you are ready to fight for something you really want. Such character traits are essential and highly sought after in business, but are generally quite rare and difficult to find, so there is a chance that the sharks may appreciate your relentlessness, prompting them to change their minds and eventually invest in your business.
For instance, in episode 6 from Season 11, Lisa and Duc Nguyen, founders of "Baubles & Soles", a kid's shoe company, were seeking $100,000 for a 15% stake. All Sharks went out, but Lisa didn’t give up and tried to get a deal for her kid’s shoe company “Bobbles and Souls” no matter what. She offered the Sharks another option, saying “Can we derisk this deal for you? How about if we pay that back in two years' time from the revenue that we make, from the profits that we make? I know this company is going to work and I know that I’m here for a Shark. This has been our biggest dream and we’re here.” Eventually, she succeeded as her persistence and tenacity persuaded Daymond John to offer a deal of $100,000 for 25% of the capital.Back to top
10. Listen carefully to any criticism and answer it adequately.
At times, no matter how well-prepared founders were, how hard they tried, or how good their pitch and negotiation skills were, some of them leave the show empty-handed. But before it happens, they always get feedback from the Sharks who ask difficult questions and express their doubts concerning the business. The Sharks never give up investing in the business when they see its potential so when they finally do it they have a good reason. As their doubts are usually reasonable, it’s a good idea to think them over and seriously reflect upon them.
As a matter of fact, constructive criticism is the best that can happen and should be treated like a blessing, not a punishment. By voicing concerns about the business, the Sharks do founders a favor, save tons of time, and prevent them from investing more money in a product or service which would never work.
After receiving negative feedback, you have a chance to quit a business that has very little potential to focus on something new with bigger potential. As Lori Greiner, one of the Sharks said in her book “Invent It, Sell It, Bank It!: Make Your Million-Dollar Idea into a Reality”, “I feel it’s wiser to go back to the proverbial drawing board and try to create something new, something different, something better. Better to set your sights on the next product, something that really will work and allow you to reach the goals.”
Ryan Cmich And Jenn Cmich, the founders of "LoveSync", seeking $100,000 for a 10% stake, learned this lesson the hard way. After the main pitch, the sharks started to undermine a basic premise standing behind the business. In particular, when Kevin and Lori mentioned that technology has gone too far, becoming overpowering, Ryan immediately put forward a counter argument. In fact, any investors’ critical remarks faced Ryan's opposition, restlessness, fidgetiness, and hostility. Moreover, according to Mark Cuban, Ryan wasn’t able to present his business model in a clear and persuasive way. By stumbling all over, he made the entire business idea sound confusing and obscure.
Naturally, all the sharks went out leaving the founders without capital. It was no surprise to anyone, but why exactly did it happen? Barbara Concoron brilliantly summed up the real issue. It was Ryan, in particular, Ryan’s lack of listening skills that was lying at the bottom of the failure. She concluded that the co-founder was so in love with his idea that he was tripping over himself to express his love without paying attention to any concerns the sharks had. Barbara strongly believes that “Entrepreneurs that don’t listen never make it.” Since Rayan failed to adequately respond to any of the concerns raised on the show, Barbara gave up the idea of investing in LoveSync despite initial product acceptance as she strongly believes that "Entrepreneurs who don't listen never do."
All things considered, getting funding for your business is never easy, but not impossible. However, it’s worth remembering that not only is an innovative idea important, but there are some other factors that influence Shark Tank's success. Generally, it’s necessary to view the Show as one big negotiation playground. The truth is founders are trying to gain as much capital for as little as a possible equity stake, while the Sharks want to invest their money in the business which is scalable and has the highest chance to yield the highest rate of return paying as little as possible for the biggest equity.
However, most of the time the investors have the upper hand in this game as they have no pressure to do a deal. Like Andrew Banks from the Australian Shark Tank put it, “Deals are like buses and there’s always another one coming.” Founders need to always keep that in mind and also try to distinguish real concerns from the Sharks’ negotiation tactics whose goal is to gain a better offer. Basically, it is one of the most important skills that can save founders from selling a business too cheaply and at the same time raising much-needed capital.Back to top
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Author: Justine Ilone Siporski is the founder, CEO and Editor-in-Chief of BUSINESS POWERHOUSE, the founder and CEO of LANGUAGE EMPIRE, coach, trainer, investor and columnist dedicated to the advancement of entrepreneurs, investors and the C-suite (CMOs, CEOs, CFOs, CIOs). Her key mission is to support leaders, business professionals and investors in achieving their highest potential, making the right business and investing decisions, and expanding their horizons.