It’s also important to know your audience. “When you are pitching, it is about what is important to the person you’re pitching to. So entrepreneurs need to know why people are investors,â€ says John. For example, “Cuban’s philosophy is ‘I will invest in 20 companies or more. I want all of them to succeed, but it takes just one big pop to create great returns.’ And O’Leary has a pure VC mentality: He wants to invest money and have a clear three- to five-year exit strategy.â€ As for John, “I like to license. I am a manufacturer and branding guru with celebrity ties, and I like leveraging relationships.â€
That knowledge extends to their other investments as well. John says investors want companies that will complement and expand their existing portfolios. For example, he’s not interested in companies that are going to cannibalize earnings, such as another urban clothing line. But tech companies excite him.
3 Reasons Sharks Won’t Bite
Shawn “Chef Big Shakeâ€ Davis also entered the Shark Tank during the second season with his business, CBS Foods, which specializes in gourmet seafood dishes. Founded in 2007, the Franklin, Tennessee-based company’s flagship product is the Original Shrimp Burger in five flavors. A restaurateur and personal chef for more than 20 years, Davis was inspired by his daughter, who at the age of 10 became a pescatarian. He wanted a low-fat, high-protein alternative to hamburgers.
As with most startups, Davis’s challenge was capital. “You can have the biggest dream, but if you can’t back it up with money, then it isn’t going to happen,â€ says Davis. With his vision of putting his shrimp burger into every supermarket in America, Davis pitched to the Sharks asking for $200,000 for 25% of his business, valuing the company at $800,000.
Although the Sharks liked Davis, they didn’t bite at his business offer. John was among the Sharks who felt that Davis had overvalued his company. He had sold 22,000 units with sales grossing around $30,000, and he had commitments from just two major supermarkets for orders worth $87,000. Unless they’re considering a fast-growing high-tech company, investors expect entrepreneurs to value their businesses on current sales and assets, not future aspirations. Moreover, seafood is an expensive commodity because of price fluctuations and the cost of refrigeration. O’Leary was looking for margins of around 70%, while CBS Foods had gross margins of only 53%.
The Sharks give the three most common reasons why investors reject a deal.
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