This is a guest post by Nick Rojas. Freelance Writer, Californian, Traveler, Loving Husband. Fan of Oxford Commas and cursive.
Entrepreneurs have it rough, we won’t sugar coat it. Getting your business off the ground in today's fast paced world isn’t easy.
For every brilliant idea you have, someone else has had that idea, or will have that idea fairly soon.
Don’t believe us?
According to the U.S. Patent and Trademark Office, 325,979 patents were granted in 2015. What’s more, the number of patents granted per year has doubled since the early 2000s.
Everyday we see entrepreneurs participate in online marketplaces. The financial barrier to entry with online marketplaces like Shopify is nearly zero.
The internet’s creation of new low cost markets has left many entrepreneurs wondering if traditional investment opportunities are still worth their time.
We say yes. Venture capitalists are still very much alive and well.
In fact, venture capitalists are evolving to keep up. The television show, Shark Tank, invites entrepreneurs to pitch ideas to investors in a game show format.
Since its inception in 2009, entrepreneurs have received millions in start up money from a variety of investors. This makes Shark Tank a valuable learning tool for budding entrepreneurs.
We’re breaking down the show’s three types of investors, some good and some bad, to give you an idea of what personalities real investors respond to.
The Honest Abe
This person will pitch their idea, the valuation they have in mind, and answer every question about their business, even if it paints them in negative light.
They’re honest, sometimes to a fault.
For example, pre-valuation plays a large role in the investor process both in the real world, and on Shark Tank. It’s the price contestant put on their business, or in other words, what their company is monetarily worth.
Pre-valuation is an entrepreneur's bargaining chip. It determines how much equity they’ll give away in return for investments.
Honestly about their company's worth is strategic. After all, they’re looking for the highest investment possible. Sometimes fudging the numbers isn’t a bad thing. On the other hand, investors spend their lives detecting lies. They know more about pre-valuation than the entrepreneurs do.
Above all else, honest abe's will earn respect.
The Know-It-All (And They Sometimes Do)
The know-it-all comes off as arrogant. They’re recognized by an undying determination to impose their opinions on the investors.
These contestants are frequently from a sector rife with venture capitalists. Entrepreneurs from Silicon Valley often fit this mold.
Negotiations with the know-it-all are ruthless. Investors often disagree with a company’s valuation, and thus offer lower investments than an entrepreneur would like.
Know-it-alls infallibly believe in their business, and if anything, will argue that their valuation is too low. Insulting the investors knowledge sometimes leaves them with no offer at all.
Though, for all their faults, the know-it-all sometimes actually does know what they're talking about.
Ultimate belief in their product leads to shrewd negotiating. High ball offers can come across as confidence, and might convince the investors that the product holds significant potential.
Both of our previous categories had their strengths and weaknesses. The scammer, however, has no redeeming qualities.
They’re the folks who take quick short cuts and use deception to convince investors their business strategy is profitable. The truth is, they’re only in it for a quick buck.
Scammers have also appeared on Shark Tank for publicity.
One incident saw a man purposefully undervalued his already financially backed company, and turn down all investment offers. He eventually admitted to appearing on television for marketing purposes.
Of all the competitors, the scammer is the least respected.
Life as an entrepreneur is difficult. However, you can make it slightly better by approaching investors in the correct way.
Confidence and honesty go a long way in convincing investors you’re worth taking a risk on.