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Shark Tank TV Show – Reality or Not? Is this How Angel Investors and Venture Capitalists Behave In Real World?




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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.

If you’re an entrepreneur like the folks on Shark Tank looking for angel investment or venture capital funding for your business, check out our free Funding Recommendation Engine.  Get an invite by just entering your email here.

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 ScreensJoseph 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.

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14 Responses to “Shark Tank TV Show – Reality or Not? Is this How Angel Investors and Venture Capitalists Behave In Real World?”

  1. Terry Hilmer says:

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    Sometimes an Angel Investor will express interest and even make a commitment for a portion of the needed investment making it contingent upon the entrepreneur securing the balance of what he/she needs from other sources or out of pocket. As an example, if you needed $100,000.00 for XYZ company for 50% equity, you may get an offer for $50,000.00 and 25% but made contingent upon securing the other $50,000.00 from an acceptable source. On the “Shark Tank” those contingencies are routinely negotiated between the ‘sharks’ themselves and an offer is then made.

  2. DblU says:

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    Watch Kevin crush your dreams in this ABC promo – It’s all about the money!

    http://www.youtube.com/watch?v=t0ubnDcyYGw


  3. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] a realistic depiction of how venture capitalist and angel investor interactions occur in real life (Is Shark Tank TV realistic?).  We’d highlighted the fact that Shark Tank investors make decisions much quicker than [...]


  4. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] big fans of reality TV show Shark Tank.  We’ve discussed whether Shark Tank’s TV pitch-fest is realistic and whether offers by the Sharks are binding, but now we’ve started geeking out to the data [...]


  5. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    04/13/2011

    Please advise:

    1. How can one apply to be on the show?

    2. Besides paying for a service or a paid newspaper ad how can one find an
    investor?

    Respectfully,

    Lucy Patterson, Founder
    New York Toy Exchange, Inc.
    [email protected]
    (626) 327-4547


  6. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    Lucy – Thanks for your comment. We have no idea how you can get on the show. Probably want to check out the ABC website.

    With regards to finding an investor, there are many ways, but one way we would definitely NOT recommend is taking a newspaper ad out. That seems like a colossal waste of money. And also be very careful about paying for a service. The vast majority are run by snake oil salesmen who will take your money and get you little in the way of investment. Not everyone is like that but just do your homework before trusting someone to help you find investment.


  7. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] most money and that Barbara Corcoran has invested the most. And we’ve also discussed whether Shark Tank TV is realistic to the real [...]


  8. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] Again, George and Rolf countered for $200,000 but ultimately accepted the $100,000 offer.  Herjavec realized that the company was on its last legs and so went in for the proverbial kill.  Not sure if that is how angel investors and venture capital firms normally behave? [...]


  9. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    [...] most money and that Barbara Corcoran has invested the most. And we’ve also discussed whether Shark Tank TV is realistic to the real [...]


  10. Warning: Illegal string offset 'keywords_time' in /home/chubbybrain/public_html/blog/wp-content/plugins/internal_link_building.php_/internal_link_building.php on line 103

    t’s all about the money!

  11. Jerry S says:

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    I always wonder if the entrepreneur will ever see the investor again. They say things like, “I would love to work with you on this idea.” But in reality, isn’t the VC just going to assign a team to the project. Not like he actually has time to ‘work with’ every person he invested money with during the season and still manage his other (and most likely more lucrative) clients.

  12. marty grace says:

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    They do see the investor my friend got a deal with Damion.

  13. Brad Brown says:

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    I just watched the end of Shark Tank. I have to say that I’m absolutely appalled by what I just watched. It’s one thing for the sharks that have billions already to take advantage of people, but when the show doesn’t explain what they did to the poor guy, I’m sickened!

    Basically the guy’s (Joe Moore of Daytona Beach Shores) concept was simple, but simple ideas can become huge. I can’t see it taking off in the US, but in Asia, where people where masks around, yes, absolutely. The company / product is First Defense, which are Nasal dust covers made of 100% breathable non-latex, skin safe material. They look kind of funny, but like I said, they might just work in other countries or maybe in the military.

    So what was so terrible? Well…he had an order for $8M over 6 years. He needed $1.2M to fulfill his first order. The sharks offered him a number of deals. $500k for 20% of the company and they wanted a 10% royalty (until they got their money back) and the offers continued until he got an offer for $4M for the entire company with a 10% royalty back to him for life. What they didn’t explain is that $500k/20% = $2.5M post money valuation. He’s thinking he would retain control since he only gave up 20% of the company. But…that was money going back into the company’s pocket (not his)…therefore he still needs $1.2M – 500k = $700k. If he sold the entire company for $4M, that was money in his pocket, he would lose control AND he would get a 10% royalty on the $8M or another $800k.

    He turned that offer down because he wanted $5M for the company and a 15% royalty. Seriously? You just got offered $4.8M minimum and you turned it down. OK, that’s bad, but then the sharks regrouped and came up with a common (shark) offer. They offered him $750k for 30% of the company – again, a $2.5M valuation. He reminded them he needs $1.2M to fulfill the first order. They said “do you think we’re going to let you fail?”

    What they didn’t tell him are the terms of the rest of the money. They said it behind closed doors, but I’m not sure most people got what they were saying…i.e. we’ll change the terms on the rest of the money he needs. In other words, they will cram him down (i.e. his valuation on the additional capital will be worse). If they give him a $1.5M valuation on the additional $450k needed, that’s another 30% of the company for them, so they will own 60% of the company before he fills his first order. Believe me, they will own at least 51%. Once someone owns 51% of your company, they have control. They don’t ever need to sell your 1/2 of the company. So…what will Joe end up with in his pocket? $0. Let’s see $4.8M and ZERO obligations to come up with the $1.2M and a 10% royalty forever…or $0.

    Shouldn’t they explain this stuff? I’m appalled! If you read articles like Orlando Sentinel, they make it out like he did the right thing…come on guys, where’s the education for people? The article in ChubbyBrain explains more about VCs and their actions, but doesn’t point out the reality above either! Absolutely appalled!

  14. Mitch says:

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    What does valuation exactly mean? I realize you just multiply the percentage by the investment amount, but what does that figure really mean?

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