The Shark'sTank vs The Real Angel Investors Of Orange County

Keywords for this post:
Business plans for angel investors

I finally broke down and watched an episode of The Shark's Tank, that new "reality" show that has entrepreneurs pitching ideas to "venture capitals". And, yes, it was just about as "real" as The Real Housewives of Orange County. None of the candidates had so much as a business plan for angel investors. No, these are not "venture capitalists". They are "angel investors". That distinction, however, is far less important than the incredible misconceptions the show is propagating.

The only time I have EVER seen angel investors listen to a five minute pitch and write a check for $500,000 was during the heydays of internet companies in the 90s. When those companies flopped on their ill conceived bellies, angel investors pretty much gave up their ill conceived ways and returned to business plans and investigation. There was actually an offer of $500,000 and another for $250,000 "investment" in this episode. Absolutely unbelievable.

The one thing the show did drive home is that inventors far over-value their inventions. They seem to place a value somewhere in the future, after the investment has made it successful. That's not how the real world works.

In a real venture investment, the company is valued at present value, not future value. It is the investment that will bring the company's value to grandiose figures. It really is a partnership between ideas and money.

The show also emphasized what poor business sense most inventors have. And that is probably true. There are millions of "better mousetraps". But very few of them ever get noticed because the inventors don't know how to promote and sell them. I think that is why I really did like one lady who appeared. She had a new fangled baster for turkeys, one that doesn't drip or splash. She sold 51% of her company for something like $35,000 to a guy who could promote it effectively. That lady is going to make a lot of money.

If you are creating a small business plan for angel investors, do take a look at the show. Some of the questions the investors had were good, relating to marketing research, prototype development, licensing options and use of funds. In the real world you will have an opportunity to discuss these issues, so be ready.