Are you ready to enter the Shark Tank? How to get money from an angel investor

Every start-up company needs money. It’s up to the owners to decide whether they use their own money or seek financial backing from outside sources. Many people start with their own savings, put a second mortgage on their house, and borrow money from their family and friends. If they need more seed money or capital to grow their business, they can approach banks or angel investors. An angel investor is an individual who likes to invest in start-up companies. He usually has operated successful businesses and invested in other start-up companies. An angel investor is able to assist with contacts and business knowledge besides financial backing (Siciliano, 2003). Since an angel investor reads hundreds of business plans a week, entrepreneurs must be prepared and passionate in their presentations and demonstrations.

Before starting to approach angel investors, entrepreneurs must be honest with themselves by doing a self-examination and business evaluation. In introspection, they ask themselves how much ownership in their company will they give in exchange for funding. They look at their debt and evaluate how much more debt they are willing to accumulate. In addition, some of their property and assets may be at risk. The entrepreneur practices his presentation in order to explain the business concept and share his vision with passion. Speaking with conviction about his vision for how fast he wants the company to grow and to what size will help the investor evaluate the business (Abrams, 2010).

What are angel investors looking for? They want to see a well-thought out business plan that summarizes the business strategy, business concept, competition, shows proven sales and future sales projections, identifies potential buyers and contracts, and states the amount of funding needed (Abrams, 2010). Learning about the owner’s business management experience and the management team that will run the business will help the angel investor decide if these are people who can execute the business plan. During the presentation, the investors want to see how the product works and learn more about the potential market (Siciliano, 2003).

To get an idea on how to prepare for an appointment with an angel investor, I would recommend watching the TV program, "Shark Tank", on ABC, Friday night at 8:00 pm EST. On "Shark Tank" entrepreneurs pitch their business idea to a group of investors, "Sharks". During the presentation, they explain their business concept, vision, and current business operations. They request a specific sum of money, and offer a percentage of their business. Then they demonstrate their product. They hope to interest at least one investor, especially the "Shark" who has distribution channels, contacts, and experience in similar types of products (Siciliano, 2003). After the presentation and demonstration of the product, the "Sharks" ask questions. The most common questions they ask are: How many units have you sold? How long have you been in business? Have you invested any money in the business? How are you marketing the product? Do you have any contracts? Where are the products being sold? Who are your competitors? Are you doing the business full-time?

A former stewardess, who designed a ride on carry on, stewardess bag with a foldable seat attached for a child, appeared on the program with her husband. The former stewardess asked for $50,000 in return for 25% equity in her business. Her husband demonstrated how awkward it is to struggle with a stroller, luggage, and a child in contrast to the ride on carry on, which takes the place of a stroller. An investor asked her how much they had invested in the business. She told them that they had put $150,000 mortgage on their house to purchase the patent and they had been paid back. Investors want to hear that the owner has put money into the business, which is known as "skin in the game". Another investor asked her if she had any contracts. She has 2,000 orders pending, but no inventory. Investors are interested when they hear that you have a patent and you have orders for the product. Two of the investors gave her offers. Both of them would help her find a manufacturer. She decided to go with the investor that she thought she could work best with and liked her suggestions for the product (Shark Tank, 2011).

In reality, angel investors do not make decisions this quickly. They might say that they’re not interested now, but contact me when your business has grown more or your prototype has been refined. To get an answer, you usually have to wait a while (Chubby Brain, 2011). However, the show highlights entrepreneurs presenting their business ideas to angel investors who decide in a few minutes whether they want to invest in the company or not. If one or more of the investors gives an offer the entrepreneurs must decide on the spot whether to accept or counter. The interaction between the entrepreneurs and investors is fascinating to watch. The more confident and quick thinking the entrepreneurs are the better chance they have of getting an investor to invest in their company (Shark Tank, 2011). However, the entrepreneurs have to be able to analyze the offer or offers under pressure. They must know how far they are willing to compromise to get the funding. In some cases, the entrepreneurs decline the offers because the angel investors do not seem to understand the vision and goals of the company or want too high of a percentage of the company (Epstein, 2009).

Preparation and passion are the two traits that are important when entrepreneurs meet with an angel investor. Being prepared to give a dynamic presentation, attention-getting demonstration, and detailed answers to the investor’s questions will help their business stand out from the rest. The TV program, "Shark Tank", walks us through the process. We can get insight into how the investors think by the questions they ask. Each investor gives an offer or decline for each business and explains why they’re not interested in that business. In real life, entrepreneurs can learn from each presentation they give to an angel investor. The investors may recommend that the owner accomplish certain things before they are willing to invest. They also take a lot longer to decide whether they are willing to invest or not.



Works Cited:
Abrams, Rhonda (2010). Six-Week Start-Up, Second Edition. Palo Alto, CA: The Planning Shop.
Chubby Brain (2011). http://www.chubbybrain.com
Epstein, L. (2009). Reading Financial Reports for Dummies, Second Edition. Hoboken, NJ: Wiley Publishing.
Shark Tank. ABC, 2011. Television
Siciliano, G. (2003). Finance for Non-Financial Managers. New York, NY: McGraw-Hill.

Aimee Bisson is currently enrolled in the Master’s Degree Entrepreneurship Program at Western Carolina University. http://entrepreneur-hot-topics.com. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article is in its entirety, author’s information, and any links remain intact. Copyright ©2011 by Aimee Bisson.