Chanel 7, here in Australia, has a great new show called Dragon’s Den where people with ideas or inventions can pitch their idea to a panel of 5 investors and offer a share of the business for sale. The show could certainly be better but here are a few valuable lessons I’ve learned so far about pitching your idea to potential investors:
- Every candidate wanted to sell just 10% of the company for $x0,000 yet at the end of the pitch most were walking away with a deal that involved 40% or more ownership for that amount.
- Do your math before you enter the room. One guy was adamant he would only sell 10% but as the investors kept haggling with him he agreed to 15%, then 20%, then 30% (for the same money)… all this did was make the investors more wary because 5 minutes before there was no possible way he would sell more than 10% and now he’s up to 30% and the $ figure hadn’t changed.
- Only talk to investors that get your idea. Just because someone has money doesn’t mean they understand your industry or idea so it’s going to be easier to pitch your fashion idea to someone who understands the fashion industry than it would be to a real estate millionaire.
- Never underestimate the value of the skills or contacts the investor can bring to the deal: One candidate had a good deal on offer but was reluctant to take it until it was pointed out to her that the two investors had contacts, distribution expertise and marketing clout that would be worth hundreds of thousands of dollars if she had to buy it. So an investor wanting a large share of your idea for a seemingly small amount of money could be worth considering if they are willing to help you with their contacts and know-how.
Lastly, and this was a something that wasn’t spoken about at all, why do you want to grow? What’s wrong with what you have right now? A few of the candidates needed money to turn their idea into a more viable business but a few candidates had good sales with good profits but wanted to expand. An example was the lady who sold her designer shoes… she sells about 600 pairs a week and her shoes were in 200 outlets around the country… why isn’t that enough?
Sure we all dream about millions of dollars but what was a nice business that you controlled becomes a business where your motives, ideas and efforts are now under the scrutiny of investors… not to mention that the business you designed to give you more life now starts taking your life away from you.
If you’re still with me there’s one more lesson:
One guy had invented a product that had sold well and could just be a fad but it had netted him $150,000 profit which was sitting in the bank. The investors were nervous about the idea being just a fad and couldn’t understand why he needed the money when he had it in the bank. I was thinking if I had invented something as simple as this and it had made me $150,000 why not just be happy with that, invest the money and sit around sipping cocktails until my next fad idea came to me… but that’s just me.
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