Cyber insurance for small business is a policy that pays for the fallout when your systems, data or accounts get hit: breach response, data recovery, lost income while you’re down, ransomware and the claims customers or regulators bring against you. It doesn’t stop an attack. It pays for what an attack costs, as long as you bought the right coverage and kept the security promises you made on the application.

You’ll also see it called cyber liability insurance, cybersecurity insurance or data breach insurance, and they don’t always mean the exact same thing. That difference matters, and I’ll get to it. This is education, not insurance or legal advice, so run your situation past a licensed broker before you buy anything.

What does cyber insurance for small business cover?

Most policies split into two halves. First-party coverage pays your own costs. Third-party coverage pays when someone else comes after you because of the incident. The NIST small business cyber insurance page points owners to the same split, and it’s the first question a good broker will ask you about.

Every policy words these differently, and plenty of items above are optional or capped. Read the declarations page, not the brochure.

Why small businesses are a target

Attackers don’t care how big you are. They care how easy you are. A five-person agency with one shared admin password and no backups is a better target than a bank, because the bank will fight back.

The numbers back that up. The FBI’s 2025 Internet Crime Report logged 1,008,597 complaints and $20.877 billion in reported losses for 2025, a 26% jump in losses over 2024. Business email compromise alone accounted for 24,768 complaints and more than $3 billion in losses. Those are people and businesses who reported it. Plenty never do.

Business email compromise is the one I’d worry about most if you’re small. Nobody has to break your firewall. They just have to convince your bookkeeper that the vendor changed bank details, or that you need a wire sent today. If you haven’t already, read up on deepfake CEO scams, because the fake voice on the phone is getting good. Then check whether your policy actually covers that kind of loss, which leads to the fine print below.

How much does cyber insurance cost for a small business?

Less than most owners expect, and more than zero. Insureon, an online insurance marketplace, says its small business customers pay an average of $129 a month, or $1,552 a year, for cyber coverage (figure from its cost page, checked November 2026). It also says limits typically run from $1 million to $5 million. Treat that as one marketplace’s data point, not your quote.

What moves your price:

• How much sensitive data you hold, like card numbers, health records or client files.
• Your industry and revenue.
• The limit and deductible you pick.
• Your claims history.
• Your security controls, which is where you have the most say.

Here’s a simple example to make it concrete. Say you run an online store with 8,000 customer records and $600,000 in revenue. You’ll be asked about card data, backups and MFA, and your answers will move the premium more than anything you can negotiate. Example only. Your broker’s quote is the real number.

What insurers ask about MFA, backups and training

Cyber applications have turned into security audits. Expect questions like these, and expect them to matter if you ever file a claim:

• Do you use multifactor authentication on email, remote access and admin accounts?
• Do you back up critical data, keep a copy offline or separate, and test restoring it?
• How fast do you install security updates?
• Do staff get phishing training?
• Do you verify payment changes by phone before money moves?

Be honest on that form. If you say MFA is on everywhere and it isn’t, you’ve handed the insurer a reason to fight your claim. And if MFA isn’t on, turn it on this week. CISA’s guidance for small businesses puts it bluntly: “Any form of MFA is better than no MFA.” It’s cheap, it’s fast and it lowers your risk before you’ve paid a cent in premium.

Cyber insurance vs a BOP data breach add-on

This is where people get caught. A lot of business owner’s policies (BOPs) let you add a data breach or cyber endorsement for a small extra charge. That’s not nothing. But those add-ons are often first-party only, with low limits, and they may not touch ransomware, funds transfer fraud or lawsuits from customers.

A standalone cyber policy usually covers both halves with higher limits. General liability normally isn’t built for this at all, and professional liability (E&O) covers mistakes in your services, not a hacker emptying your systems. If you’re still mapping which policies you need in the first place, start with what business insurance do you actually need and come back here for the cyber piece.

When is the add-on probably enough? If you hold very little customer data, take payments through a processor and don’t wire money. When do you want standalone? If you store client data, run an online store, handle health or financial records, or a client contract requires a set cyber limit.

The fine print that decides your claim

The headline limit is the number people brag about. The sublimits are what pay out. Look hard at these:

• Social engineering and funds transfer fraud. Often a separate, much smaller sublimit. Sometimes excluded unless you ask for it.
• Ransomware sublimits. Some policies cap extortion and related costs well below the full limit.
• Business interruption waiting period. The hours you have to be down before income loss coverage starts.
• Panel vendors. Many policies want you to use their approved forensics firm and breach lawyer. Know who they are before you need them.
• Security warranties. Controls you promised on the application that can come back to bite you.
• Claims-made terms. Most cyber policies are claims-made, so gaps in coverage and retroactive dates matter.

Here’s what I’d do before calling a broker

1. List the data you hold and where it lives. Email, CRM, payment tools, shared drives.
2. Turn on MFA everywhere it’s offered, starting with email and banking.
3. Set up backups and test a restore. A backup you’ve never restored is a guess.
4. Write a one-line rule for payment changes: no new bank details without a phone call to a known number.
5. Pull any client contracts and note the cyber limits they require.
6. Then get quotes from a licensed broker who works with several carriers, and ask for the sublimits in writing.

Most owners know they should do half of that list. Knowing isn’t the same as doing. The business that’s done the work pays less, gets approved faster and has a cleaner claim if the worst happens.

Frequently Asked Questions

Do small businesses really need cyber insurance?

If you store customer data, take payments, send wires or rely on systems to earn money, it’s worth pricing. The FBI logged more than $3 billion in business email compromise losses in 2025, and small firms are easy targets.

Is cyber insurance the same as data breach insurance?

Not always. Data breach insurance usually means first-party breach costs, often as a BOP add-on. A full cyber policy typically adds third-party liability, ransomware and business interruption.

Does general liability cover cyber attacks?

Usually not. General liability is built for bodily injury and property damage claims. Cyber losses normally need a cyber policy or endorsement.

Does cyber insurance cover ransomware?

Many policies cover ransomware response, recovery and sometimes the extortion payment, often under a sublimit. Payments also have to comply with sanctions rules, so check the wording with your broker.

Does cyber insurance cover wire fraud or business email compromise?

Only if the policy includes social engineering or funds transfer fraud coverage, which is often a separate, smaller sublimit. Ask for it by name.

How much cyber insurance coverage do I need?

Published small business policies commonly start at $1 million. The right limit depends on your records, revenue and contracts, so get a licensed broker to size it with you.

An 83b election is a choice to include the value of restricted property, usually stock, in your gross income in the year it’s transferred to you, instead of waiting until it becomes substantially vested. You include the excess, if any, of the property’s fair market value at transfer over the amount you paid for it. The election has to be filed no later than 30 days after the transfer date, on IRS Form 15620 (Rev. 4-2025) or a written statement that meets the same requirements. There is no extension of that 30-day clock.

You’ll also hear it called a section 83b election or an 83b filing. Same election. If you make it, later appreciation generally is not treated as compensation when the shares vest. If you skip it, you include the spread at vesting, when the shares may be worth a lot more. This is education, not tax or legal advice, and it is not a reason to file automatically. Talk to a CPA or startup counsel before you sign anything.

When an 83b election even comes up

The election applies when substantially nonvested property is transferred to you in connection with performing services, as an employee or an independent contractor. In a startup, that usually means restricted common stock you receive as a founder or early hire, or shares you get by early-exercising options that are still subject to vesting.

It does not apply to the option itself. IRS Publication 525 (2025) is explicit: you can’t make this choice for a statutory or nonstatutory stock option. The choice is about the restricted stock (the property) once it’s been transferred to you. If you’re early-exercising incentive stock options, alternative minimum tax and the ISO holding-period rules can change the analysis. That’s a question for your CPA, not a shortcut in this article.

Vesting itself is a separate conversation from this filing. If you and a co-founder are still working out the founder equity split and the vesting schedule, settle that first. The 83b election is what you may need to file in the 30 days after those unvested shares actually transfer.

What you include in income if you file

Form 15620 walks through the math. You report the fair market value of the property at the time of transfer, determined without regard to lapse restrictions, minus the amount you paid. That difference, if any, goes into your gross income for the tax year that includes the transfer date.

Here’s a simple teaching example, with made-up numbers. You receive 1,000,000 shares of restricted common stock. You pay $0.0001 a share, or $100 total. A recent independent appraisal puts fair market value at $0.001 a share, or $1,000. If you file a timely 83b election, you include $900 in income ($1,000 minus $100). If the company later succeeds and those shares are worth much more when they vest, that later appreciation is not included as compensation at vesting. Your basis for a later sale is what you paid plus what you included as compensation, according to Publication 525.

Fair market value is not a guess you jot in a notebook. For private company stock, it often comes from a 409A valuation. Use the value your counsel or CPA tells you belongs on the form, and describe the shares and the vesting restrictions clearly. Form 15620 asks for the quantity, the transfer date, the tax year, the restrictions, the value, the amount paid and the income to include.

The 30-day deadline is the whole game

Form 15620 says the election must be filed no later than 30 days after the date the property was transferred. If the 30th day falls on a Saturday, Sunday or legal holiday, IRC section 7503 lets you treat it as timely if it’s postmarked by the next day that is not a Saturday, Sunday or legal holiday. That’s the only flexibility the form’s instructions give you.

There is no “I’ll catch it on next year’s return” version of this. A late 83b election is generally not an 83b election. If the transfer already happened, count the days today. If the transfer hasn’t happened yet, build the filing into the closing checklist so you’re not starting the clock and then looking for a form.

How to file Form 15620

Publication 525 for 2025 says you can make the choice by filing a written statement or Form 15620 with the Internal Revenue Service Center where you file your return, no later than 30 days after the transfer. The Form 15620 instructions (Rev. 4-2025) describe mailing a completed, signed form to the IRS office where you file your federal income tax return. A written statement that satisfies Treasury Regulation section 1.83-2 is still an alternative.

The IRS has also published Form 15620 as a form you can complete on IRS.gov. Before you file, check the current Form 15620 page and Publication 525 for the submission method that applies to you, including any online option. Don’t send the same election twice. Keep proof that you filed on time, whether that’s a mailing receipt or an online confirmation.

A copy still has to go to the company (the person for whom you performed the services). If you and the transferee of the property are not the same person, a copy has to go to the transferee too. The form itself includes an agreement to provide those copies. Keep a signed copy for your own records. Filing with the IRS is not the same as telling payroll or your cap table administrator.

What happens if you miss the deadline

If you don’t make a timely election, the default rule in Publication 525 applies. You generally don’t include the value in income at transfer. When the property becomes substantially vested, you include its fair market value at that time, minus any amount you paid, as compensation. Your holding period, under that default rule, begins when the property becomes substantially vested.

Go back to the teaching example. If you never file, and four years later 1,000,000 shares vest when they’re worth $1 a share, the spread that can show up as compensation is $1,000,000 minus the $100 you paid. That’s a different outcome from including $900 in the year of transfer. Whether filing would have been smart depends on the real value at transfer, the risk that you’ll forfeit the shares, and your tax situation. It is not automatically “file, always.”

What happens if you file and later forfeit the shares

This is the risk people skip past. An 83b election may not be revoked except with IRS consent. Publication 525 says consent will be given only if you were under a mistake of fact as to the underlying transaction. Changing your mind, or leaving the company, is not that.

If you forfeit the property after you’ve already included its value in income, Publication 525 says your loss is the amount you paid for the property minus any amount you realized on the forfeiture. In plain terms, you generally don’t get back the compensation income you already included. If you paid little or nothing for the shares and you get nothing back when you leave, there may be no loss to claim. Form 15620 points to Treasury Regulation section 1.83-2(f) and Revenue Procedure 2006-31 for revocation guidance, and section 83b(1) is the statute behind the forfeiture rule.

That’s why “the shares are cheap today” is not, by itself, a complete reason to file. Cheap shares and a high chance you’ll be gone before they vest can still produce a tax bill you can’t recover. Walk through both sides with a CPA.

What to do in the first 30 days

If restricted stock has just been transferred to you, or is about to be, do this in order:

1. Confirm the transfer date and start counting 30 days from that date, not from the day you remembered to deal with it.
2. Get the facts for the form: share class and quantity, restrictions, amount paid, and fair market value at transfer.
3. Sit down with a CPA or counsel before you file, especially if the value isn’t tiny, you might leave, or ISOs are involved.
4. File Form 15620 or a valid written statement on time, then give the required copies to the company (and the transferee, if that’s someone else) and keep proof.

I’m not your tax advisor, and this isn’t advice for your return. The sources for the rules in this article are Form 15620 (Rev. 4-2025) and Publication 525 (2025). Use them with a professional who can apply them to your grant, your filing status and your state.

Frequently asked questions

What is an 83b election?

An 83b election is a choice to include restricted property in your income at transfer, equal to fair market value minus what you paid, instead of waiting until the property becomes substantially vested.

How long do I have to file an 83b election?

You must file no later than 30 days after the property is transferred. If day 30 is a Saturday, Sunday or legal holiday, the Form 15620 instructions treat it as timely if it’s postmarked by the next business day. There is no general extension.

What form do I use for an 83b election?

IRS Form 15620, Section 83b Election (Rev. 4-2025), or a written statement that satisfies Treasury Regulation section 1.83-2. Publication 525 says either can be filed with the IRS service center where you file your return.

What happens if I miss the 83b deadline?

A late election generally doesn’t count. You then follow the default rule and include the fair market value minus what you paid as compensation when the property becomes substantially vested, which can be a much larger number.

Can I revoke an 83b election if I leave the company?

No, not on your own. The election can’t be revoked without IRS consent, and Publication 525 says consent is given only for a mistake of fact as to the underlying transaction.

Do I get a loss if I filed an 83b election and later forfeit the shares?

Usually not for the income you already included. Publication 525 says your loss is the amount you paid minus any amount you realized on the forfeiture, which can be zero if you paid little or nothing.

A cap table explained simply is a ledger of who owns the company, in what form, and what their ownership looks like if every promised share actually existed. “How to read a cap table” means looking past the issued-share column and checking fully diluted ownership: outstanding common and preferred, granted options, the unallocated option pool, and a model for unconverted SAFEs or notes. That fully diluted percentage is the number that usually matters before you take the next round.

You’ll also hear it called a capitalization table, a cap table, or a fully diluted ownership schedule. Same document. If you only look at the shares already issued, you will feel richer than you are. The dilution is already sitting in the other rows.

What a cap table is actually showing you

At a minimum, a cap table lists each holder, the kind of security they have, the number of shares or share equivalents, and their percentage of the company. The two percentage columns that matter are issued (sometimes called outstanding) and fully diluted.

Issued ownership is shares that already exist, divided by shares that already exist. Fully diluted ownership is a holder’s shares, plus anything they’re treated as owning on an as-converted or as-exercised basis, divided by a larger denominator: all those issued shares, plus options and warrants, plus the unallocated option pool, plus, if you’re doing this honestly, a conversion model for open SAFEs and convertible notes.

Preferred stock is usually shown on an as-converted-to-common basis, because that’s how it counts in an ownership discussion. You don’t need to memorize every preferred right to read the ownership math. You do need to know which denominator someone is using when they quote a percentage.

Issued vs fully diluted: the first number founders misread

Here’s a teaching example with made-up round numbers. Two co-founders and a small option pool:

Founder A can look at the issued column and think they own almost 90%. On a fully diluted basis, they own 85%, because the 500,000 reserved but unissued option pool already sits in the denominator. The pool is not a rumor. It’s part of the company you’ve already promised to the future hiring plan.

If 200,000 of those pool shares had already been granted to an early hire, the issued column would change and the fully diluted total would not. Granted or unallocated, those pool shares belong in the fully diluted picture. That’s the first reading habit to build.

The option pool: always ask which denominator

People throw around “a 10% pool” as if everyone means the same thing. They don’t. Ten percent of current fully diluted shares is not the same as ten percent of the company after a new round closes. A term sheet that says the pool will be “refreshed to 10%” is unfinished until it says 10% of what, and whether that increase happens before or after the new money is counted.

There is no official standard size. I’ve seen term sheets ask for different pool figures in different deals, and anyone who tells you “it’s always 10%” or “always 15%” is repeating a habit, not a rule. The job is to get the percentage, the denominator and the timing in writing, then model what that does to your shares.

A pre-money pool refresh is the version that catches founders. The investor wants the pool topped up so that, after they invest, the pool is a set percentage of the post-money company, but the new pool shares are treated as outstanding before their money comes in. Existing holders, mostly founders and early employees, absorb that increase. The new investor does not.

Unconverted SAFEs and notes belong in the picture

A SAFE or convertible note is not a row of shares until it converts. If your cap table software only shows issued stock, that paper can be invisible, which is how founders walk into a priced round thinking they own 60% and walk out owning a lot less than the new money alone would explain.

You don’t have to turn this page into a lesson on the instrument. If you need the difference between the two, that’s the SAFE vs convertible note article. What you do need, when you read a cap table, is a conversion model for every open SAFE and note: the cap, the discount if there is one, and a clear assumption about how it converts in the next priced round.

A simple illustration, again with teaching numbers. A post-money SAFE for $1 million on a $10 million post-money cap is designed to deliver about 10% ownership at conversion. If you ignore it, Founder A’s 85% in the table above looks stable. If you model that 10%, existing holders are sharing a smaller pie before a venture round even shows up. The exact share count depends on the documents and the round, so treat this as a warning light, not a closing spreadsheet. Get the conversion modeled before you quote your percentage to anyone.

What a priced round plus a pre-money pool refresh does to your percentage

This is the math I want every founder to run before they get excited about a term sheet.

Keep the same starting company: Founder A 8,500,000, Founder B 1,000,000, unallocated pool 500,000, fully diluted 10,000,000. A new investor offers $2 million at an $8 million pre-money valuation, which is a $10 million post-money valuation, so they’re buying 20% of the company after the close. The term sheet also says the option pool must be 10% of the fully diluted post-money cap table, and the increase is required on a pre-money basis. These are teaching terms, not a recommendation.

Without any pool refresh, the fully diluted total after the round would be 12,500,000 shares. The new investor would hold 20%, the old pool would shrink to 4%, and Founder A would go from 85% to 68%.

With the pre-money refresh to a 10% post-money pool, the fully diluted total rises to about 13,571,429 shares. The new investor still holds 20%. The pool becomes 10%. Founder A lands at about 62.6%.

The new money cost Founder A 17 points. The pool refresh cost another 5 points, and none of those 5 points went to the new investor. If you only heard “we’re selling 20%,” you missed it. That’s why you read the cap table, and the term sheet’s pool language, together.

What to check before the next round

The starting common split is a different job. If you and a co-founder are still deciding the founder equity split, settle that first. The cap table is what happens after those shares exist, when later promises start stacking on top of them.

Before you negotiate or sign, work through this list:

1. Recompute your percentage on a fully diluted basis, including the unallocated pool, not just issued shares.
2. List every open SAFE, note, warrant and promised grant, and model the conversion or issuance, even if it hasn’t happened yet.
3. Read the pool language in the term sheet. What percentage, of which denominator, and is the refresh pre-money or post-money?
4. Rebuild the post-round cap table yourself (a spreadsheet is enough) and compare it to whoever sent you the model.
5. Don’t treat a hanging promise as a footnote. An offer letter, an advisor grant or a convertible that “we’ll clean up later” is already in the fully diluted story.

This is education, not legal advice, and it’s not a reason to pick any particular cap table product. If the round is real, have startup counsel or an experienced advisor model the close with you before you sign. The point of learning to read the cap table is so you can see the dilution coming, while you still have a chance to negotiate it.

Frequently asked questions

What is a cap table?

A cap table, or capitalization table, is the company’s ownership ledger. It lists each holder, the security they own, the share count and their percentage, on both an issued and a fully diluted basis.

What does fully diluted ownership mean?

Fully diluted ownership is your shares divided by all shares that would exist if options, the unallocated pool, warrants and converted SAFEs or notes were counted. It is usually lower than your issued percentage.

Does the unallocated option pool dilute founders?

Yes, on a fully diluted basis. Reserved but unissued pool shares sit in the denominator, so they reduce founder percentages even before those options are granted or exercised.

How do SAFEs show up on a cap table?

A SAFE is not shares until it converts. You should still model it, using the cap and any discount, so your fully diluted percentage includes the ownership that SAFE is expected to deliver in the next priced round.

What is a pre-money option pool refresh?

It’s a term-sheet requirement that the option pool be increased, usually to a stated percent of the post-money company, with that increase treated as happening before the new money comes in, so existing holders, not the new investor, take the dilution.

How do I read a cap table before a priced round?

Start with fully diluted ownership, add a conversion model for every SAFE or note, then rebuild the post-round table using the term sheet’s valuation and pool language. Compare your model with the investor’s before you sign.

What do investors look for? A founder who genuinely believes every word of the pitch, a story that hits the problem in the first minute, a team that can actually execute, and a clear answer to where every dollar goes. Kevin Harrington, an original shark on Shark Tank, says the passion gets you in the room, but the team and the use of proceeds get you the check.

Kevin has taken thousands of pitches. His official bio credits him with creating the infomercial, pioneering the As Seen on TV brand, launching more than 500 products that produced well over $5 billion in global sales, and building 20 companies that each topped $100 million in revenue.

I wanted the inside advice a lot of entrepreneurs need right now. How do you approach investors, and what really matters when you’re presenting your business idea? Here’s what he told me.

What investors look for in the first 10 seconds

Before you’ve said anything useful, Kevin is already doing what he calls the old 10-second look. How confident are you? How do you present yourself? Are you delivering this in a powerful, passionate way?

Most of all, he wants to know you believe the words coming out of your mouth. “Too many people, someone’s written them a script.” He wants the real deal, not someone reciting a deck they didn’t build.

How to pitch to investors: tease, solve, seize

At one pitch contest, founders had eight minutes each. One guy took seven minutes to even mention his product. Kevin had to tell him straight: if you’re taking eight minutes of all these valuable people’s time, learn to deliver a reasonably good pitch. “You lost us.”

His structure is simple, and he slowed down to make sure I got it:

1. Tease. Open with an attention-getting problem.
2. Solve. Show how you solve it, with demonstrations, “magical transformations,” testimonials and documentation, plus a little competitive analysis.
3. Seize. Close with an irresistible offer.

Kevin points out he hears pitches for a living, but most people you pitch don’t. If you don’t grab their attention with the problem first, you’re probably not going to land, “especially if you’re looking for money.”

Why investors stopped betting on the jockey

I asked Kevin whether he’d ever backed someone on attitude alone. Somebody who walks in with so much certainty that you just want to work with them. His answer surprised me. Not anymore.

He used to bet on the jockey, the entrepreneur. He’s been let down too many times. Plenty of gung-ho founders with all the passion in the world have driven a business into the ground because they couldn’t execute. Maybe they had one skill set, but no finance or operations, and they never surrounded themselves with people who did.

The person, their passion and their belief still weigh very heavily. But if someone wants half a million dollars, Kevin wants to see the right structure, the right team and the right expertise behind them first. “I’ve seen entrepreneurs run through the money real quick and say, ‘Well, sorry, we just didn’t make it.'”

Tony Robbins once told me your business will eat as much money as you throw at it. Kevin agreed. That’s exactly why investors want counterbalances around a passionate founder.

Use of proceeds: the question that kills deals

One of the big questions on Shark Tank was always: what’s the use of proceeds? In plain English, if I write you the check, where does the money go?

Kevin told me about a founder who wanted a quarter of a million dollars. The plan was a down payment on a building, office furniture, a copy machine and printers. That was the whole $250,000. Kevin was out. Where was the marketing plan? The rainy day fund? The budget for public relations, advertising or a launch? “You can tell pretty quickly that they really haven’t thought out how they’re gonna really launch this business.”

A good operations or finance person makes you think through the cost of hiring and the cost of weathering the opening months of cash flow, because cash flow doesn’t come out of the box. It builds.

Then there’s the office. Kevin once visited a company with about five employees in 7,000 square feet of expensive space, complete with a ping pong table and a Skee-Ball machine. “You don’t need a ping pong table until you become Facebook.” I see so many people trying to pimp out their office space. Get the profits coming in first, then deck it out later.

Same goes for the funding announcement. A lot of people celebrate millions in investment, money that isn’t theirs, without a plan for it. Kevin’s point: nobody wants to give you $5 million that’s supposed to last 18 months and see you back in six or eight months asking for more. Unless your numbers have changed dramatically, that second round gets very hard.

Get investor-ready before you ask

Kevin’s biggest early mistake was being a young, cocky entrepreneur who thought he could do it all himself. He started with $25,000 and assumed that once he was successful, people would throw money at him. It doesn’t work like that. He ran out of capital.

So he hired a former bank president who knew how to raise money. The first thing that man asked was, “Where’s your contract file?” Kevin didn’t have one. With 30 products on air and eight or ten contracts per deal, writers, producers, directors, hosts and inventors, they had 300-plus contracts scattered everywhere. A lender wants to see every one of them, and wants to know there are no contingent liabilities like possible lawsuits waiting out there.

They spent 90 days getting ready before they asked anyone for money. Then they raised $3 million, which Kevin says gave them enough capital to grow to $100 million in sales. Whether you’re raising on a SAFE, a convertible note or a priced round, the diligence starts the same way: show me what you’ve signed.

My takeaway? Ignorance isn’t always bliss. And if you don’t have a strength in a certain area, find someone who does. It’s the lesson almost every first-time founder learns the expensive way.

Bring in experts whose track record helps you raise

When Kevin launched a beauty business with the model Kathy Ireland, he admitted beauty wasn’t his world. He does gadgets, fitness and kitchen products. So he brought in an executive who had spent a decade running a major beauty company, first as a consultant and then as president and COO.

That hire did two jobs. The company got real expertise, and Kevin used the executive’s resume to go out and raise capital for the new venture. The right people help you run the business, and they help you get the right money to grow it.

Prove it before you bring investors in

Kevin likes being first to market, but he’s honest that pioneering is riskier. As an investor, he prefers to get in when something is safer and more proven. As an entrepreneur, he expects to fail more than he succeeds, so he tries to fail fast and fail cheap, then get to the big winner.

That’s why he’ll often keep 100% ownership of a new idea until he’s proven it, and only then bring in investors if he needs to raise big money. “I don’t have to write every check, but I’ve proven it out now, so it’s a little safer investment.” To me that’s calculated risk, the same way Richard Branson likes to negotiate the downside before he jumps.

And proof is exactly what investors are looking for. For every company of his that hit $100 million, Kevin says, two or three didn’t succeed. I love that he said it out loud, because it gives people permission to be okay with failing on the way to a win.

Run a dollars-per-minute check on your day

One more habit worth stealing: how you spend your time. Kevin learned it from Home Shopping Network, which schedules tomorrow’s airtime based on today’s sales per minute. If a product was expected to do $2,000 a minute and did $1,000, they’re not happy, and the schedule changes.

He runs his day the same way. If he’s got three things he could do in the next hour, which one has the highest profit potential for the time? Some people waste half their day on things that generate no revenue, then wonder why they’re out of cash. My view: a founder who manages minutes like that will probably manage an investor’s money the same way.

What investors look for: a pre-pitch checklist

1. Can you say the problem in your first 30 seconds?
2. Do you have a demo, a transformation or a testimonial that proves you solve it?
3. Is there a clear, irresistible offer at the end?
4. Who on your team covers finance and operations?
5. Can you show line by line where every dollar goes, including marketing and cash flow?
6. Are all your contracts in one file, with no surprise liabilities?
7. What have you already proven with your own money?

Kevin closed with a quote from Paul J. Meyer that he lives by: “Whatever you vividly imagine, ardently desire, sincerely believe, and enthusiastically act upon, must inevitably come to pass.” I’d add one thing. Knowing what investors want won’t get you funded. Walking in with every answer on this list will.

FAQ

What do investors look for in a startup?

A confident founder who believes in the idea, a team that covers finance and operations, proof the product works, and a clear plan for the money. Shark Tank investor Kevin Harrington says passion alone no longer gets his check without the team to execute.

What do investors look for in a pitch?

Kevin Harrington wants a tease, solve, seize structure: open with an attention-getting problem, solve it with demonstrations, testimonials and competitive analysis, then close with an irresistible offer. Don’t wait seven minutes to say what the product is.

What does use of proceeds mean?

Use of proceeds is exactly where an investor’s money will be spent. Investors want it tied to your business and marketing plan, with room for marketing, hiring and early cash flow, not just buildings, furniture and equipment.

Why do investors bet on the team, not just the founder?

Passionate founders without finance or operations support often burn through capital before the business works. Harrington says he’s been let down too many times betting on the jockey alone, so he backs founders surrounded by people who can execute.

How do you prepare your business to raise money?

Organize every contract in one file, clear up possible liabilities, build a use-of-proceeds plan and bring in experienced help. Harrington’s company spent 90 days getting ready before raising $3 million.