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ABC show Shark Tank shows entrepreneurs pitching their business ideas/companies to a group of high net worth individuals (angel investors). If you are an entrepreneur, watch the show. It offers some good insights into how to pitch and the types of questions investors might ask although obviously made TV friendly (read: drama). And it’s fairly entertaining to boot so even if you are not an entrepreneur, check it out. (Here are Shark Tank investment results over season 1 and 2)
The obvious question you may have after watching it is: How realistic is Shark Tank and similar to interactions with venture capitalists and angel investors in reality (and not reality tv)? David Rose, an angel investor, with NY Angels and Rose Tech Ventures offers a thoughtful perspective on Quora that the show is not at all realistic saying it is akin to comparing an archaeologist’s work to Indiana Jones. And on many counts, we think David is right. The show obviously is made for TV so the investors (especially Kevin O’Leary) have big personalities and act outlandishly to make it “good for tv”, but here are some other ways that Shark Tank differs from reality followed by some ways the show may be similar.
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How Shark Tank Differs From Reality
You get an answer yes/no immediately – In real life, you may not get a no from an investor as clearly and quickly as entrepreneurs get one on Shark Tank. At the end of a Shark Tank pitch, entrepreneurs get a very clear “I’m in” or “I’m out” and this within a few minutes. In real life, the investor may fall off-the-radar completely and you hear nothing, or you might get a soft no as in “we’d love to talk more when you have a bit more traction or prove out the model a bit more.” Or they may give you a clear no, but it usually takes some time. We’re generalizing here so not every VC or angel investor does these things, but it’s more typical than not that you’ll be waiting for an answer.
So while the angel investors on Shark Tank do “denigrate and yell at the entrepreneurs seeking funding” as Rose points out (not cool but good for TV), they do respect entrepreneurs enough to give them quick, clear answers on where they stand.
They tell you clearly what they like or don’t like – Besides the immediate yes/no, the Shark Tank angel investors are very clear about what they don’t like and do like about a business opportunity – brutally so at times. They are frank about not liking the idea, the business approach or the entrepreneur themself. Of course, their candor may be off-putting to an entrepreneur, but most entrepreneurs will hear no a lot in their life. Getting very honest feedback about one’s business also affords you an opportunity to improve upon it and prove the angels wrong if you need motivation. Of course, having a thick skin is helpful as hearing your baby is ugly is never pleasant.
They’re clearly and almost exclusively motivated by money – Many VCs and angel investors talk about wanting to support entrepreneurs building “world-changing companies” or “mentoring the next generation of great companies” and the talk of money especially in a first meeting may actually be perceived to be a bit uncouth. And perhaps it is or perhaps the Shark Tank angels are providing a non b.s. way to approach what is ultimately a business transaction predicated on money. In the case of the Shark Tank, the investors’ altruistic and mentoring intentions, if they exist, are secondary or further to making money. It may seem tasteless or just practical depending on your perspective, but if you’re an entrepreneur pitching these investors, you know what they’re in it for and that you have to make the case compelling for them financially first and foremost above all else.
Sharks offer deal terms that go for the jugular – While it is hard to generalize for all VCs and angel investors outside of the show, the angel investors on the Shark Tank live up to their shark moniker and do drive deal terms that are probably more lopsided than you might find typical in the “real world”. In fact, they go for outright acquisitions at times or for controlling interest. These are both deal scenarios that are highly unlikely given VCs and angel investors are generally betting on the jockey not the horse and so having a motivated entrepreneur with skin in the game is important. Owning a controlling stake of course may reduce some of the proverbial skin. It also offers the angel investors an added level of protection.
Despite its differences with reality, the Shark Tank is not totally dissimilar from reality. Here are some ways it is similar to interactions with venture capitalists and angel investors.
How Shark Tank’s Reality TV is Actually Realistic
Traction trumps personality – When First Defense Nasal Screens‘ Joseph Moore presented his business on Shark Tank for nasal filters, the angel investors were very disinterested to start. Moore who was presenting was passionate about what was a seemingly very good idea, but he wasn’t a great presenter or showman, and his product didn’t necessarily resonate with US investors. And so right as the investors were losing interest, he revealed he had a multi-million dollar order from Saudi Arabia to which Kevin O’Leary emphatically said “Why didn’t you tell us that earlier?!”. What this tells us is that traction, momentum, actual sales, etc supersedes personality. However, charisma and being suave can win you money, but obviously, if you have the stuff to back it up, you’re in better shape.
They invest in what they know – If it’s got a retail clothing angle, Daymond John is more interested. If it’s an online play, you can see Mark Cuban’s ears perk up. If it’s got an online security play, Robert Herjavec is more keen on the idea. Investors, the good ones at least, are not just bringing their cash, but also bringing experience and a set of contacts that will help accelerate the company’s growth. This is why you see the angel investors on Shark Tank often stick to their knitting in the types of companies they invest in.
They create syndicates and compete with each other for deals – As in the real world, great entrepreneurs and businesses are in limited supply. When the angels on Shark Tank see a great idea and entrepreneur, they get worked up and want in and will compete with each other to get the deal. This is invariably good for the entrepreneur. At the same time, they will create investor syndicates thereby collaborating with each other on deals. So if a deal would benefit from two of the angels’ areas of expertise or networks, they might team up and invest together. The “collusion” on Shark Tank is perhaps greater than in the real world, but who knows what happens behind closed doors amongst VCs and angels in the real world.
If you watch The Shark Tank and have experience with venture capitalists and angel investors, in what other ways is the show similar or dissimilar from your experience? Leave your thoughts in the comments.