Four out of every five start-ups fail . This is part of the learning experience for an entrepreneur, and many successful start-ups ‘pivot’ or change their strategy at least once before achieving a prosperous business model.
It is important for entrepreneurs to understand how to determine the value of their growing business from the perspective of prospective investors. Once a start-up has implemented a minimum viable product and achieved the break-even point, it may be necessary to generate additional capital to grow the business.
How do “sharks” determine the amount to invest in a start-up business?
Shark Tank is an American reality TV series where entrepreneur(s) make business presentations to a panel of prospective investors (“sharks”). The “sharks” determine an investment amount in return for equity in the business.
10 most successful Shark Tank businesses
The Shark Tank TV series is an over simplification of the real world of investment funding. However, the following video provides a valuable stimulus to start thinking about how potential investors in start-up businesses determine the value of a new business and associated equity stake for their investment.
When watching the video, think about the following questions:
- How did the “shark” determine the value of the business proposal?
- How did the “shark” determine their equity percentage for the investment?
- Apart from the direct cash investment, what value does a third-party investor’s network and experience bring to a start-up business in return for equity?
After viewing the video, share your thoughts by posting a WEnote below, for example:
- The best Shark Tank proposal was …. because …
- The business was successful because …
- The most important message viewing the Shark Tank video is …
- Shark Tank investors are smart because …
- Shark Tank investors don’t get the real world of business because …
Post your comment(s) below, and then look on the course feed page to see what others have posted.
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If you prefer, you can create a post on your learning journal blog. Be sure to label or tag your post IENT103.
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Read the following summary of how the “sharks” value a business:
- Bookbinder, D. (2015, December 8). In the Shark Tank it’s all about valuation.
Annotation activity - What will my start-up business be worth to a prospective investor?
As an entrepreneur, you need to think ahead about how investors are likely to value your start-up.
Before we consider different valuation methods in more detail, read, annotate, and comment on the following article which introduces a few principles:
- Advani, A. (2004, September 7). How to Value Your Startup.
Remember to tag annotations using the course code: “IENT103”
- What do you think your start-up business may be worth to a prospective investor, once you achieve the break-even point? Think about a rough estimate figure.
- Is your estimate likely to be different from what a potential investor thinks your business is worth? Why? / Why not?