Shark Tank India has grabbed the eyeballs across age groups. The makers of the series wanted to make entrepreneurship and start-ups a dinner table conversation in a regular Indian household. And, what better than catching the premium 9:00 to 10:00 pm time slot on Indian television.
Today we will try to enlist financial lessons that can be learnt from the show.
New entrepreneurs pitch their businesses to owners of established start-ups who decide to invest or not invest in them after assessing the company. Shark Tank India judges take a percentage of the equity/stake in return for their investment and sometimes decide to partly fund in the form of a loan.
Notice that every time a Shark Tank India judge listen to a pitch and decide to invest, they determine the equity accordingly. They either end up investing at the same level of equity or ask for more.
Simply put, equity means shares. Buying equity means buying a stake in someone’s company. When the sharks invest in a company, they are essentially taking a risk that the company/startup will grow, and so will their invested money. To protect their capital as per their risk level, they ask for some stake in the company in return. If they see more risk to their invested capital, they often revise the offer and ask for more equity/stake. They calculate their risk potential and find a way to protect their capital.
For example: say the pitcher asks for Rs 50 lakhs in exchange for 5% equity. If the sharks see more risk in the start-up, they may ask for more than 5% equity in exchange for an investment of Rs 50 lakh from their end.
If you think your risk potential is low, you may invest lower in high-risk assets. Investing according to your risk potential is necessary.
If you follow the show, you may notice that not all sharks agree to a similar equity level. A shark may back out of an offer when a higher equity/stake is not offered to them because they may not want to compromise on their risk with a lower stake. Another shark might end up taking the same offer at a lower equity level.
Their risk levels are different.
The important lesson to be learnt is that copying a friend’s investment in a high-risk company might land you in trouble. Maybe your friend has a lot more money saved up as an emergency when compared to you. Every investor and every shark is different!
You should have sufficient capital to secure your future specific to retail investors. The planning and the assets might differ from investor to investor. How much you invest in your long term plan might be different. Just like, on the show, start-ups and businesses are often grilled on the long term viability of their start-up, retail investors too need to have a long term plan in place.
Know your business and know it well. This comes in bits and pieces. Take examples from Shark Tank India. A person investing their hard-earned money will ask the most pertinent questions.
How much is your business worth today, how much can it be worth tomorrow, are you planning to scale it and how, do you have other investors, are you planning to expand with newer products, if you are a B2B firm are you planning to scale it to B2C or D2C or vice versa, and many such questions.
Again, knowing if you want to scale is not the end. You need to assess if your product has potential in the market you want to scale in. Understanding your product’s potential and usage in the market will help you plan your future better.
This is an offshoot from the first learning. You may constantly be updated with how much are your business’ earnings. If the numbers are not growing what are the reasons, what is the margin you are getting out of it, which channel your startup is earning, cost analysis, cash flow, and so on.
Time and again, the sharks have also quizzed the pitchers about the long term viability of their business. Time waits for none. Preferences change over time, and the offered product or service might get outdated.
Ask yourself, is your business very akin to the current times? If your product is only suited to the present market, do you plan to adjust to future changes? Getting a proper plan in business may not always be possible but being prepared for unforeseen circumstances is essential.
Your product/business might be top-notch, but are you the only one doing it in your market? Sharks on the show often ask the pitchers if they are the only ones providing the service. If yes, how easy is it to break their present monopoly and if not, how are they planning to compete. This applies to every business from every industry.
Not everyone needs to have in-depth knowledge about finance as a subject but a working knowledge is a must for managing your money or running a start-up. You should know what margin, net profit, gross profit, revenue, Whitelabel and many other basic terms mean. It helps you make informed decisions.
Ask yourself if you need help. Whether as a retail investor in the form of a financial advisor or as a start-up entrepreneur in terms of another co-founder, it is essential to answer this question. It is incredible to be empowered but we often see sharks suggesting pitchers on the show to get more co-founders on board to manage their business better and focus on targeted development. This is not a thumb rule. You may or may not require this but revisit your needs and the question.
Getting required business and finance knowledge is one end of the fulcrum, but developing your personality is another. Strengthening yourself mentally is important because it trains you better to tackle any pitfalls. Developing a never-give-up attitude can go a long way.
Sharks on the show often avoid investing in industries they do not understand or relate to. Conversely, we have also seen that they seem to be keener towards start-ups that belong to an industry or have a certain quality that is their strong point. The meaningful learning from this is to bet your hard-earned money in spaces you are aware of. This helps you to understand the risks and positives of the sector. It enables better preparedness.
Learning can come in any form. Books, movies, talks, blogs or even a knowledgable friend. Keeping our eyes and ears open to any source of information and knowledge will help us grow. Doing your homework and building an intellect is the foundation we need.