I've always felt the real benefit of being on Shark Tank is the amazing publicity that the show offers, no matter whether or not a deal is obtained. I recently interviewed Proof Eyewear (http://www.iwantproof.com) on what the experience provided (I'll post it here once it's published next week). During the airing of the show and the following weekend, they could barely keep their site standing (over two million uniques in 24hrs), and the past few weeks since airing have seen huge increases in business.
Random note -- the application is sent to a @yahoo email address... I find that kind of funny all things considered -- SharkTankCasting@yahoo.com (http://abc.go.com/shows/shark-tank/casting)
> I've always felt the real benefit of being on Shark Tank is the amazing publicity that the show offers, no matter whether or not a deal is obtained.
That's probably why the producers of the show get a 5% equity, no matter whether or not a deal is obtained.[1]
You'll notice that sometimes a presenter is very careful not to mention another company they have, typically one that's moderately successful. It's not because they don't want the sharks to get it piece, it's that they'd end up now giving up a 5% equity stake in that company too.
Yes, the main benefit of being on the show is the publicity (as long they don't skewer you). It seems that at least once per show there is a company that has little real need for funding, and I'm sure they went on there with the specific intent of getting the publicity and little else.
One peculiar thing that I noticed in those statistics is that Daymond John was leading in terms of deals. I was sure he would be dead last...I rarely see him do deals.
Yep. I've always figured the best thing to do (for Dragon's Den, I've seen a lot less Shark Tank but it seems identical) is to be ready to capitalize on the advertising and then aim for no-deal.
Especially since what I've heard about the process of getting the deal actually done (as opposed to TV done, a lot of them fall through post-air) is that it'll sap a lot of time and effort anyway.
Yep, you have to think of that equity stake as the cost for a 5 minute Friday night commercial. I'm assuming such a commercial would cost maybe $30-50k or more, so it seems like a semi-fair deal (although since you are also the one creating the entertainment which lands the sponsor deals maybe not!)
I wonder if that's unique to Shark Tank. I never heard of it wrt Dragon's Den.
That said, I think if you were really going to go through with that plan you'd probably want to try to find out how often the option has actually been exercised. It may not even be entirely enforceable.
A 10x profit multiple on companies at the average growth stage that Shark Tank companies are at is insanely low. I've always felt that the entrepreneurs who take a deal are completely screwed. The smart ones take the huge publicity jump from appearing on the show, turn down any deal offered, and seek money from the inevitable inbound investor generated post-show airing.
> The smart ones take the huge publicity jump from appearing on the show, turn down any deal offered, and seek money from the inevitable inbound investor generated post-show airing.
Turn down the deal is exactly what Scott Jordan of SCOTTEVEST did... I'd be curious if he got action on the deal he was trying to make after the show aired. Scott described his experience with Shark Tank extensively on the company's website [1]. The "raw unedited video" of Scott watching the episode he appeared on for the first time is interesting (he gets interrupted with news that the SCOTTEVEST site is not withstanding the traffic surge during the episode's airing!).
The most interesting candidate in my view are the ones that want less money but access to the sharks' contacts or expertise. Usually those contenders have a product that aligns very closely with something one of the investors already does, eg some guy a few weeks ago who had printed facepaint masks that washed off easily, for people who like to support their sports team by painting their face in the team colors. Very low costs per unit, the sort of thing a parent would buy for a kid on game day at the stadium. Naturally Mark Cuban saw a perfect opportunity as it dovetailed with one of his first promotional strategies as a sports team owner, and they quickly agreed a deal with reasonable-seeming terms.
I have to disagree with this. I've watched every episode of Shark Tank, and many of the businesses are in highly competitive markets and do not have any fundamental competitive advantage. 10 times profit is actually a really good valuation.
Investing at a 10 times profit in a small company is a highly risky investment. You are gambling that the company will be: a) ethical b) continue to operate for enough years to pay you back c) If they stay the same then after tax it will take 15 years to pay back the investor assuming that all the profit goes to paying back the investor which is highly unlikely.
Potential growth is the upside that you are looking for but it's certainly not at all guaranteed, and the opposite is also possible (negative 100% growth, or company being worth nothing).
Smart, but I hate those people. At least make an effort to pretend like you want some sort of deal for entertainment sake. Don't just walk in, completely ignore the sharks and advertise your product.
I've heard Cuban interviewed a couple times. A tiny fraction of what gets a deal on the show actually close the deal. Once they do the due-diligence with facts and actual numbers, things tend to fall apart. More on that: http://www.nypost.com/p/entertainment/tv/deal_interrupted_cP...
Share Tank is also interesting because to even go on it, I believe you have to give 3% to the network no matter what the outcome of the show is, investment or no investment..
"I further understand and acknowledge that I will be required to enter into further agreements with Finnmax
LLC (“Producer”) relating to the business that I may present to the sharks for possible investment (my “Business”).
Among other things, those agreements are currently anticipated to provide that as a condition of my participation on
the Series, Producer, Sony Pictures Television Inc. and American Broadcasting Companies, Inc. (collectively the
“Shark Tank Entities”) or their designee(s) will receive an irrevocable option (the “Option”), to do either of the
following or neither, at their election and in their sole discretion:
1. Receive a 2% royalty of the operating profits of my Business or
2. Receive warrants that give the Shark Tank Entities or their designees a 5% equity interest in my Business. "
The opportunity to showcase your product and have it seen by millions of potential customers and investors on national television may actually be worth far more than their take.
One option might be to go ahead and get on with a non scalable business in your ultimate market, using it as a way to build personal reputation and credibility. Shoot for a base hit and early exit (or failure) off the show, and then raise money in a year or two from the same caliber of investor but on better terms by going direct.
If the entrepreneur got a choice between the two, the 2% royalty might be conceivably worth it in some cases.
Letting Sony/ABC pick, however, means any deal you do on the show has an automatic minimum of 5% equity tacked onto the investment price. And that's pretty significant considering I've seen plenty of deals for as low as 0-10%.
Fundamentally the type of businesses that go on these TV shows tend to be much slower growth than your typical tech startup, hence why they receive much smaller valuations than what we in the tech industry are used to seeing.
This is cool as far as it goes. However what I'd really like to see (though it would obviously be a lot more work) is an analysis that tracks the deals through to consummation. I've read that a very high percentage fall through before funding (HyConn was one of the high profile examples.)
Agreed. I really enjoyed the HyConn episode up until I read up on the aftermath. It's for the best that handshake deals based on up to sixty minutes negotiation is not binding, but it would be nice to be able to easily track down the real story on companies after the episodes air.
I've been looking for data on the offer variance on deals that have one entrepreneur versus multiple partners. Can't seem to locate that info.
From watching it, it seems like entrepreneurs get more offers when they have partners, particularly there on set with them. Would match up with what is seen in other investing circles.
The statistics are unlikely to be complete. This is television. We don't know if all deals have been on the air. For a variety of reasons, some deals could have never aired -- such as the subjects not being telegenic enough or the segment not being "compelling TV." I don't know if there's a disclaimer at the end to this effect but this happens with game shows too so it's likely to be in effect with Shark Tank as well.
EDIT to add: Yes, I know he's likely measuring just what he -- and all of us -- sees, but still.
Does this analysis include how many deals actually close? There is a due diligence phase after the show is taped and I'm under the impression very few deals actually complete....
I worked at GiftCardRescue.com when we were on season one of the Shark Tank. Kwame took the deal on tv and then declined when it got down to the paperwork. Smart guy...
Random note -- the application is sent to a @yahoo email address... I find that kind of funny all things considered -- SharkTankCasting@yahoo.com (http://abc.go.com/shows/shark-tank/casting)