Shark Tank is a television show where entrepreneurs compete for private equity bids from "sharks," private investors who have a lot of money to invest in budding businesses and a possible monetary interest if the businesses succeed. If you have never watched this show, you may want to. There are several things you can learn about private equity that you probably never knew before, and what you learn may help your own entrepreneurial endeavors.
Lesson #1: There Is Always More Than One Offer
If you need a private investor for private equity in your company, there is always more than one buyer out there. On the show, there is a panel of several investors who may or may not invest in you. It is just a small sampling of the vast differences in investor preferences and potential monetary offers. If you are refused by one investor, keep trying. If you get more than one offer, go with the one that best suits your needs and still allows you to have some control in the direction of your company.
Lesson #2: You Can Negotiate the Terms of Private Equity
Private equity is a little more fluid in nature than, say, a business loan. While private investors can give you a straightforward business loan, they are in this game to gain more than just the interest on a loan. They want to fund you, but they want some of the equity in your company too. You have to decide just how much equity you are willing to give up. On the TV show, entrepreneurs offer anywhere from five percent to fifty percent interest (or more) in the equity of their companies. This places the "sharks" in a position whereby they own part of your company, and you have to decide how much of your company you want to share with them.
The other side of this negotiation coin is the amount of money you want the investors to give you for a partnership or foothold in your company. If you ask for a lot of money, be prepared to have a counter offer, because investors will undoubtedly want a larger portion of equity. It may be better to get several smaller investors on board than try and secure one or two larger ones if you are not willing to give up a lot of your company's equity.
Lesson #3: If Private Equity Does Not Work for You, You Can Always "Go Public"
Many entrepreneurs find that the offers they receive from private investors for a stake in the private equity of the company is not what they expected. If you continuously get offers that you find disagreeable, or worse, no offers at all, you may want to "go public" instead. This means that you have decided to create multiple shares in your company and place those shares for public sale on the stock market. You are certainly entitled to do that, since it may be easier to buy those shares back if you want to someday revert back to a privately-held company.
If you have further questions about private equity, consider discussing your concerns with a local business broker, such as RLS Associates.
Share20 November 2015
I still remember the day that my wife and I bought our first home. We were excited about filling the place with new furniture and looking for great area rugs. Unfortunately, before we knew it, we found ourselves deeply in debt. It was difficult to dig our way out, but over the course of the next several years, we were able to make things right. I want to teach other people how to manage finances so that they can avoid the turmoil that we went through. Financial planning might seem impossible, but with a little practice, I know it can become second-nature.