As I’ve stated plenty of times throughout my blog, I have an almost unhealthy addiction to abc’s hit show Shark Tank. For the years that I’ve watched as entrepreneurs either strike a deal or get eaten alive by the money hungry sharks, I have always been entertained. Often though, I find myself wondering how accurate the process is to everyday, “regular” startup fundraising. This week, I found the article Why ABC’s Shark Tank Is Entertaining, And 100% Wrong On Dealmaking, and decided to give it a read. The first thing that the article discusses is the bidding war that often goes on between the sharks. The author of the article, Steven Rosenbaum, said the following regarding the topic:
“Whether you present to partners in a fund, or a group like New York Angels, they’ll speak in one voice and they’ll invest on the same terms. So the idea that you’ll have an auction among partners or peers is simply fiction.”
Although my only experience watching pitches to investors is Shark Tank, l understand that this is something that doesn’t happen in a natural company’s pitch. It’s pretty evident that the auctioning on Shark Tank is simply added drama and entertainment for the consumer of the show. This statement from this author made me wonder whether or not the deals agreed upon were final or if there was a process that occurred after the show ended between the investors and the entrepreneur. This led me to the article ‘Shark Tank’ Star Robert Herjavec: Deals Fail Because Of Entrepreneurs, Not Investors, where Robert briefly explains what happens after the show and why deals sometimes fail.For this post, l was not really looking to dive in to why deals fail, instead, I was interested in what Robert had to say about the reality of the show. When talking about the show, Robert says,
“It’s really our own money, and so we go through that due diligence period and find out what’s real. At the beginning, if a deal didn’t close, it was because we didn’t close it. Now it’s the complete opposite. A lot of people come on and then change their mind. They get the publicity from the show and then don’t want to close. I would say 90 percent of the time now, it’s the entrepreneur [who backs out].”
this quote said a few things about the accuracy of Shark Tank. The first is that the sharks to in fact invest their own money and they do go through the due diligence process with each company that gets a deal on-air. On the other hand, according to Robert, not every entrepreneur that accepts a deal on-air, goes through with the deal when the cameras stop rolling.
The second aspect that Rosenbaum touched on in his article was the importance of a company’s valuation. Kevin O’Leary, who is described as the “Simon Cowell” of Shark Tank always attacks entrepreneurs about there outrageous valuations. Again, l think this adds a dramatic aspect to the show that keep people watching. Although valuations can be important, I don’t think that all investors make it the most important aspect of a pitch they listen to. More importantly, often times, the valuation is directly linked to revenue by the sharks which certainly is not the only way to value a company.
Overall, I think Shark Tank gives the average consumer a fairly reasonable inside look at the entrepreneur and investor world. Although Shark Tank exaggerates aspects of the show and doesn’t fully close a negotiation on camera, it is expected that characters and situations will be over the top for entertainment purposes. It’s a fun and great show to watch, but I wouldn’t recommend any true entrepreneur to base their pitch on what they’ve seen on abc’s Shark Tank.
qsvcexperience 