Questions to ask startups when evaluating deals the Shark Tank India way

Angel investors are always in the quest for passionate founders with a clear vision and good business sense. As investors source deals and sift through the funnel, interacting with the founders and spending some time with them is one of the best ways to evaluate deals. This is especially true for early-stage startup deals. 

However, the thing about the private market is that most deals and negotiations take place within closed groups and networks of the ecosystem. 

So, Shark Tank India as a business reality show came offering a complete picture of the angel funding process from the get-go as founders pitch business ideas to the time investors finalize their decisions – and all the negotiations in between. The funding deals are a treasure trove of lessons for startup investors on how to approach startup investments. 

Lucky for all aspiring angel investors out there, LetsVenture presents a framework of questions to get started with and evaluate deals the Shark Tank India way. 

Tell us a little bit about you. What led you to start this venture?

As potential investors, the Sharks always want to know more about the founders and the kind of person they are and events and incidents that motivated them to start the business. 

Time and again, Sharks ask many questions to test founders for their qualities as an entrepreneur. Investors meet different kinds of people and just like the Sharks, one must ask questions to understand the founder and their ways of working better. This explains Shark Anupam Mittal’s latest question to founders of Organic Smokes: Aap humesha aise hi decision lete ho life mein?

Who is on your team, and what relevant experience or expertise do they bring to the table?

The judges at Shark Tank India are always curious about a startup’s core team or at least the co-founders. They are keen on understanding the co-founder’s experience and how it contributes to building the business. This helps them determine if their visions as investors align with the founders. 

What is the problem that your product is solving, and how big is the market for this problem? How is it different from competitors, and what are your key differentiators?

The size of the market is one of the biggest factors Sharks consider before making an offer as the Total Addressable Market (TAM) determines the possibility of how much a business can grow. More importantly, it is ultimately the strength of the product and its quality that helps them decide if a venture is worth investing. 

How do you sell the product? What is the business model? 

The business model or the mode of selling products is an important factor to consider as investors. Sharks too take a call on investment based on their thesis or the business models they believe in and expertise. It is wise for budding angel investors to stay away from sectors or business models they are not familiar with. 

Shark Namita Thapar’s famous verdict – Yeh meri expertise nahi hai. I am Out – that has become a major meme material is also a good lesson in angel investing.

Do you have any patents, trademarks, or other intellectual property related to your product or service?

Just like the Sharks, investors must ask if founders have patented to secure ownership of any innovation in product and technology. For any unique products and businesses, patent and other intellectual property rights may be the winning edge against any competitor in the market.

What are your numbers – sales, revenue, and profit margin – in the last three months and years? What are your projections for the year?

Sharks are drawn towards knowing the numbers indicating health of the business as much as viewers of the reality show are invested in it. Needless to mention, there are many follow-up questions to understand various scenarios such as high or low profit margin and businesses undergoing high burn rate. 

Sharks seek clarity in business models and numbers. So, when the numbers don’t add up, they dig further as investors verify a founder’s claim or to understand their pitch better. As Peyush Bansal ruminates in the latest season, “kahi kuch toh problem hai, samjh nahi aa raha!”

If you find yourself in similar situations as an investor, it’s time to dig deeper.

How much funding are you seeking, and how do you plan to use the funds?

Founders always mention their funding ask against an equity share in the business. This inevitably draws the question where the funds will be utilized. As potential investors, Sharks seek to understand the direction in which a founder is headed and the difference their investment can make. 

Hence, as investors, it is important to always ask where and how your investment will help. 

How do you justify the valuation? 

Valuation is perhaps the most debated aspect of fundraising and many entrepreneurs have come on the reality show, asking a varying range of valuations. As Anupam clearly stated in the current season, angel investors must note that investors decide on the valuation at the end of the day and it is upon the founders to accept or reject it. However, there is always room for negotiation.  

One should always ask the founder why they are valuing the company at a certain amount and make sure you find it reasonable. 

What does your Cap Table look like? Do you have existing investors who have invested in previous rounds?

Another important takeaway from the many pitches at Shark Tank India is to ensure the startup’s Cap Table is neat before one cuts the cheque. A messy Cap Table may not be worth even a really promising business which is often prevalent in family businesses. One should also be aware of all the existing investors as they can affect a startup’s ask and valuation. 

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It often takes asking the right questions to lock in a good deal and make sure you are investing in a sound founder and startup. Angel investors can start with the questions given above and customize follow-up queries based on the business model and sectors.  

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(To learn more about angel investing, explore Learn by LetsVenture, a destination portal for lessons across stages of angel investing and free resources. 

If you ready to start angel investing, join LetsVenture and start investing)