How Not to Become Shark Bait

Like sharks smelling blood in the water, entrepreneurs are often the target of sharks looking to take over their business.

NOVEMBER 16 2016
Matt Walton

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As an entrepreneur you are going to encounter a shark (or two, or three…). We all hear about the “shark”, but it’s not like the guys on TV (what you see is what you get)- it’s about sharks that don’t look like sharks – the wolf in sheep’s clothing. As an entrepreneur you need to quickly hone your skills to identify these kinds of sharks, ensuring you won’t end up exposing yourself, or at worst – losing your company. It’s sad, but there are just people out there that want to take advantage at any cost. 

Some sharks come as your next mentor, others come as your bridge to success, others come with the promise of money. The reality is, if it sounds to good to be true, it always is.

The more incestuous the team is, the more it should be a concern for you. A sharks intention is to spread the wealth. Having core centralized power camps inside your company will expose you while hampering the ability to execute. You will immediately be at a significant personal, professional and market disadvantage. Remember, you have no idea who these people are, how you will click as a team and you can’t afford to merely trust a bunch of talk and hope.

As entrepreneurs, we create, we build, we turn ideas into tangible products. This process is hard, and 99% of people can’t do it. There’s always going to be people looking to jump on your bandwagon, take over your business to capitalize on something that they couldn’t do. It is especially bad for early stage entrepreneurs. Early stage is difficult, you are strapped for cash, limited resources – and usually emotionally tapped, which is the perfect time to have someone seem like a savior. I have put together few key thoughts to continually check yourself.

1. Know what you want, and what you don’t want.

If you don’t know what you want, how are you going to make sure you get it, and you never go into a negotiating without knowing your ask. This isn’t just for the business, but this is really what is your goal. It can’t be I “want to make a lot of money.” You can’t enter any negotiation without knowing what you want and clear and concrete about your desires. By knowing what you want and being clear with the expectations in both conversation, and in writing it will at least create a tone and alignment that you can continually come back to. It provides you the essence of the good faith framework in which you decide to engage within, or you can separate any engagement early on. Keep in mind, this is just a framework, and as I will continually say – the devil is always in the details, and that is really where push comes to shove.

2. Don’t get mesmerized by the show

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Many sharks who I have encountered did have success, so it’s not uncommon to find your self-driving up to mansions, or being exposed to significant high worth “friend” or contact networks. Access is great, and can help in a lot of different ways, But just remember these are their friends and connections, not yours. Don’t get caught up in the moment because you met some well known or high net worth person. They aren’t investing in you – the shark is rallying support for their role, position, and ultimately their flip.

3. History can tell you a lot, but who is re-telling it?

Talk is cheap and bullshit is cheaper. Anyone can spin themselves to look like a hero or the operator that made everything happen. It’s the people who worked with them that can tell you the real truth. Don’t just listen – go research it. Do your due diligence. Listen to the names people drop, and go look them up. Look at who they are connected to on Linked in, ask and dig around. If they have worked with other founders – go look them up. This is the most important thing you need to do – it will tell you exactly who you are dealing with.

4. Be skeptical of the one-hit wonder.

Having a success is something to be respected. I know how hard it can be. But was it luck, or was it repeat-able success. Going public on a few million in revenue back in the .com days doesn’t qualify for being a serial success story. It qualifies for being quite lucky – successful. I have always believed that the line between success and luck – can be blurry. Really understand what has happened across their history, how many times were there successful exits – that will at least provide you a good idea of how relevant a shark may be.

5. Perception isn’t reality and they’re not your friend.

One of the key things that I have noticed is how quickly sharks like to get you feeling comfortable. They warm up to you, see your struggles and talk about how much they can relate to the challenges facing you as an entrepreneur. The ability to have someone you can relate to, as an entrepreneur is an awesome thing – and one of the ways you get sucked into the swirl. Camaraderie and the feeling of having help can leave you very vulnerable – because it can put your instincts on the hiatus. Keep your distance, do not let them “work” inside the business until you have everything legally papered.

6. Forget mentorship when money is involved.

When money is involved, it’s not about you, it’s about ROI and anyone wanting to jump into a young business and “make it big” is not doing it because they want to mentor you. It is all about the exit. Sure you will learn and see different things, just make sure you remember a mentor is invested in your personal growth – while a shark is invested in expanding their ego and pocketbook at any expense.

7. Exerting pressure? Beware.

This has to be the one big sign that will tell you something’s wrong. It’s a sign that there is something fishy going on, and you need to work at your pace to feel comfortable. That doesn’t mean dragging your feet, but it also doesn’t mean rushing to sign everything right away. If you have multiple sharks in place, watch out for the good cop bad cop play – it’s a very common way to try to manipulate you. One acts as the diplomat, while the other gets frustrated, pouts, stomps feet because you aren’t moving fast enough, or at the liking of the group.

Bringing people into your business can work at a good pace, but the moment someone is trying to pressure you to move super fast – or not allow your attorneys adequate time to iterate on the documents is a pretty clear indication that someone wants to steal your company.

8. Devil is ALWAYS in the details.

I don’t care how aligned you seem to me on a term sheet, it’s all about what gets put into the formal paper and the details associated with that. You need to always consider exposure. Exposure meaning how much risk you are assuming for what cost or what value. 

Don’t overlook the details based on being spun up on how big the idea is, or how much money you are going to make. “Something is better than nothing,” I can’t tell you how many times I have heard this. In principal – yeah. But unless you have customers, revenue, marketing, and a solid growth business strategy, there is a lot of time and hard work to put in before nothing turns into something (crossing the chasm) – and the reality is the devil you know is better than the-devil you don’t and a lot of things can happen while trying to cross a chasm.

At the end of the day, you need to always look out for #1, because if you don’t, no-one else will. It may mean that you pass up, or even lose opportunities, but like everything in life, you keep doing it you get better – there is always opportunities to people that chase them. You have to make sure that you keep your emotions in check while listening to your gut intuition at all times. If you can find people that you trust, ask a TON of questions, and listen. Business and negotiations are like chess. You had better be playing 4 moves ahead, otherwise, you will find yourself in checkmate before you know it. At the end of the day, I learned everything I can by being burned a few times. Age is the price of wisdom, and as an entrepreneur – I have chosen this path. Like many of you, it just takes a few times being bit to really understand the true motivations of people, especially when you have something they want. It’s all part of the journey.