Scoring an appearance on "Shark Tank" is a great opportunity for entrepreneurs, but getting the show's famous investors—business gurus like Mark Cuban, Daymond John and Kevin O'Leary—to open their pocketbooks is harder than it looks. To win over the sharks and get prime-time exposure, contestants can't just demonstrate that their business has healthy sales and growth potential. They also need some insider knowledge on what the sharks like and don't like to hear. Below are 10 tips for landing a deal, straight from entrepreneurs who have pulled it off.
Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."
—By Graham Winfrey, special to CNBC.com
Posted 19 March 2015
Being a good listener is one of the most important virtues when pitching the sharks, so successful contestants remain aware of when it's time to let them speak. "The sharks talk over each other all the time and they'll talk over you, but don't interrupt them," said Melissa Carbone, who attracted a $2 million investment from Mark Cuban for TenThirtyOne Productions, an entertainment company that produces Halloween-themed attractions. "It just pisses them off. Be respectful."
A strong presentation is almost as important as having compelling sales numbers. It's vital to do something unusual or unexpected to make a pitch stand out. "We did a fashion show as part of our pitch to help showcase our product," said Evan Mendelsohn, co-founder of holiday sweater company Tipsy Elves, which received a $100,000 investment from Robert Herjavec for 10 percent of the company. Shark Tank gives entrepreneurs complete control over their set design, so it's unwise to skimp on the visual element of the pitch.
Of all the things entrepreneurs need to grow their companies, marketing and public relations are probably the least important in the minds of the sharks. What they really want to invest in are founders who are willing to pound the pavement and sell like crazy. "Do not say that you will use the sharks' money for marketing and PR," said Nick Morton, co-founder of Tipsy Elves. "They hate that."
Contestants need to have the answer to every question the sharks throw at them, but must avoid sounding like they think they know everything there is to know about business. "You should never act in a way that you wouldn't want to be seen," said Ben Kusin, whose company, Reviver Clothing Swipes, received a $150,000 investment from Lori Greiner for 15 percent of the company. "You want to get in front of 8 million people and look good."
If a shark has an idea for a better way to grow the business, entrepreneurs in search of funding can't immediately reject it just because it conflicts with their vision for the company, said Reviver co-founder Eric Kusin. After all, the sharks didn't get where they are by making poor business decisions.
Weighing the pros and cons of an offer can be tough, especially when the sharks are applying pressure to make a decision. In the end, though, it's purely a math game. "Trust your intuition," said Chase Hamilton, co-founder of apparel company SpiritHoods. "A lot of people tend to be so excited about the opportunity that they lose focus on what a good valuation is." SpiritHoods attracted a $450,000 offer from Daymond John for 50 percent of the company, but Hamilton ultimately decided not to take it.
Because the sharks are all expert negotiators, the first offer almost certainly will come with a lower-than-expected valuation for the company. Founders should come to the tank knowing exactly how much equity they're willing to give up. "Plan for the idea that they're probably going to make you an offer that [you don't] want," said Alex Mendeluk, co-founder of SpiritHoods. "Be prepared to push back on that."
While a counteroffer is warranted when a shark asks for a huge chunk of equity, there isn't room for an aggressive negotiation. Coming back too hard can lead to a shark retracting the offer. "It's a fine line that you have to walk," said Carbone of TenThirtyOne Productions. "Entrepreneurs who know how to walk that fine line definitely have an edge."
When it comes to poking holes in the business plan, the sharks can be pretty aggressive, but that doesn't mean they won't make an offer. "Nothing's perfect," sai David Heath, who received $250,000 from Daymond John for the athletic sock company Bombas, but only after John cut his company's valuation in half. "They're going to find something at fault in your business to talk about, and you have to be prepared to defend yourself."
Oftentimes, a shark will pass on investing in a company if he or she isn't passionate about the business. If the product speaks directly to one of their personal interests, it's helpful to play up that fact. "We knew that Robert Herjavec was a runner," said Bombas co-founder Randy Goldberg. "We specifically said, 'Make sure you try these [socks] on, Robert. We know you're a runner. What do you think?'"