ABC network is telecasting a series called the Shark Tank, where entrepreneurs pitch their businesses to a panel of 5 Venture Capitalists (VC). The Venture Capitalists (VC) then choose to buy a stake in the entrepreneur’s firm. After acquiring the stake, the VCs help to take the entrepreneur’s business to the next level by increasing sales, marketing reach, production capacity, etc.. Also, during the course of the show one Venture Capitalist will show you how his(or her) prior investments have performed. Several entrepreneurs get rejected (and nastily too) by the venture capitalists and fail to raise capital.
During the pitch, most entrepreneurs showcase new consumer products e.g. better winter wear, packaging for wine, wipes for greasy hands, kids toys, etc. Very few of these products are software or hardware related which are valued very differently, and may not interest the audience of nationally broadcasted TV series.
While funding success is a great criterion to measure the entreprenuer’s capability, there are also definitely several lessons learnt from failed pitches. These learnings could be applied to any creative profession: be it scientific research, fine arts or even computer programming. A few learnings that impressed upon me are as follows:
1) Build products which people buy in order to use.
2)Demonstrate 100% commitment to make the venture a success. You should be so convinced about your idea that you should be willing to do whatever it takes to make your idea successful.
3) Plain Innovation ( in the form of patents) sometimes do have a value, even when there are no sales. [ you could either license or sell your patent.]
4) If you want a large valuation for your company – you should already have big sales or should demonstrate a large market potential for your product.
5)Though prior money raised by your firm is not a criterion for additional funding, prior money from investors does help increase the value of your firm.
6) Know your idea very well, know your market very very well and know how your customers think and act with your product very very very well in that order.
7) Don’t go begging for funds with a half baked idea and a half baked product – you will never get funded irrespective of how much you are in debt. Be humble , patient and listen… these guys have done it over and over…
8) Once VC’s invest money, the value the entrepreneur derives from an investment is much larger and is significantly disproportionate to a monetary investment. For e.g. if a company is making a revenue of 1,00,000$ before VC investment then the company could see its revenue grow to 2 million$ after VC investment. The VC investment is a classic “Inflection point” for the entrepreneur.
9) Age and experience are never binding factors for innovation, entrepreneurship and funding. E.g. a 18 year old high school student raised 100,000$ and a 60 year old man raised more than 1 million$.
10)However, the older the firm the lower the investment raised (and the possibility for raising money)
11) The investment is mostly in the talent of the entrepreneur(s) and is rarely ONLY based on the technology.