Shark Tank is the best and (probably) only true television show that trains entrepreneurs. Adrian Stone, an Angel Investor and successful entrepreneur have this to say about Shark Tank:
I have sold a number of businesses and invested nearly $1 million of my own money into 25+ startups, yet I still watch this show … every version and variant that I can get my hands on (e.g Dragon’s Den UK, Canada, and Australia).
Shark Tank shows through the prime time medium of entertaining caricatures of investors and deals with the simple reality that LIFE IS REALLY HARD FOR THE WANNABE ENTREPRENEUR and your ‘deal of a lifetime’ probably won’t survive its first meeting with a real investor.
Today, I will be sharing with you the different lessons learnt from the TV series Shark Tank from the perspective of an entrepreneur, professor, investor and also a Shark Tank Fanatic.
I don’t just watch Shark Tank, I take detailed notes. There were so many nuances and patterns in the show (and it looked nothing like the deals I was seeing as an investor), that I decided to start tracking the actual data (see:).
After six seasons and 495 companies, here’s what I’ve learned:
- Half of the founders on the show close a deal with the Sharks (although after the show, many deals fall apart during diligence)
- 60% of the companies are pitched by a man
- 25% of the companies are pitched by a woman
- 15% have both a male/female pitching
- Women are slightly more likely to close a deal on Shark Tank (53.6% of women closed a deal, versus 48% of men).
- The average investment is $260K, the median is $150K, and the range is $10K – $5M
- The average valuation is $1.1M, the median is $500K, and the range is $14,286 – $25M
- Women-led companies receive the lowest valuations on average, at $760K
- Men get the highest valuations, at an average of $1.5M
- Shark Tank companies generally have a physical product
- The most popular types of companies on the show are Food & Beverage (21% of companies on the show), Fashion/Beauty (19%), and Lifestyle/Home (14%)
- The types of companies that are most likely to close a deal are Fitness (57.5% close a deal), Green Tech (56%), and Healthcare (56%)
- The types of companies least likely to close a deal are Business Services (23%), Pet Products (41%), and Software (45%) .
- has invested the least at $4.9M; while has invested the most at $17.8M
- invests at the lowest valuations ($582K on average), while invests in the richest deals ($1.65M on average)
- Most of the sharks have one product category that makes up roughly a third of their investments: (Lifestyle/Home), (Food & Beverage), (Fashion), and ( Food & Beverage)
- Like Silicon Valley, the women sharks ( and ) are more likely to invest in women entrepreneurs.
These are some of the practical things which have been demonstrated repeatedly on the show:
- Investors don’t invest in dreams, they invest in proof.
- The rich want to get richer, even if they don’t need any more money.
- Stay cool, calm and collected. If you have a good idea, a real investor will always want it. THEY win when you get over excited or afraid of losing the deal.
- Never get pressured into a deal. Pressure means poor decision-making.
- People with money may sometimes try to bully you because they think they can.
- Many people get carried away with the fantasy of success and miss the boat of reality
- Ego Kills Deals
- Every “Rule” of business and valuation is subject to whims and feelings.
Terrence Yang: Mentor and Small Pre-seed Angel Investor
I’m going to focus on the positives of what I learned from Shark Tank.
As background, I am an investor and startup adviser who has watched dozens of episodes. I sometimes discuss episodes with another former Wall Streeter turned startup investor/cofounder.
He was a senior prop trader at a leading hedge fund and is quite contrarian and independent thinking. We both like Shark Tank, notwithstanding that it is unrealistic, etc. (For example, the meetings are much longer and far more thoughtful and undramatic than what they edit it down to.)
Anyway, here’s what Shark Tank helped reinforce, or learn in a more permanent way:
1. Investors should manage their downside risks.
Despite investing early, the sharks really work hard to manage their downside risks.
They focus a lot on proof of traction in the form of revenues. They’ll come up with a lot of counter-offers that may be lower valuations, more control, tranched financing, etc. All these help mitigate risk.
2. It pays to have a platform.
The sharks get much better valuations than startup investors do. Just check, Gust, Wefunder or and compare. Pick consumer and retail products for an idea.
Now that Mark Cuban helped fix the fee and equity structure for folks who appear on Shark Tank, I think it’s safe to say that they deserve it. They get you national exposure, even if they don’t invest. They have incredible domain experts, particularly if a product is ripe for sales on QVC with one of the world’s best QVC channel experts.
3. Entrepreneurs should solve their own problem.
Some of the best businesses were built solving an immediate and important need the entrepreneur had himself or herself.
4. Respect the paying customer.
Ideas and grand plans with zero revenue get shot down very quickly on Shark Tank. If you are an ecommerce or consumer products company, show revenues.
Some entrepreneurs have a profitable business and then want to build something tangential and give up equity in the new business. The sharks never go for that. They want to invest in the profitable business and want you to focus on expanding that instead of trying something new.
One thing I have learned from Shark Tank (ST) is that Reality TV sucks even more when it misleads otherwise honorable and sincere entrepreneurs.
I admittedly have only watch a couple of episodes. Assuming what I watched is representative of the overall show, it is shockingly devoid of positive lessons for real-world entrepreneurs. For instance:
o Investor relationships are generally fostered over many months, not a few minutes.
o Ideal investors are experts in your space and can provide germane and specific help. Per my quick review, this is typically not the case with the ST panel.
o The amounts invested and the valuations paid are not representative of a typical tech deal. Most legit Seed rounds provide entrepreneurs with enough funds to generate meaningful value in advance of a future funding round and seldom result in giving up more than 20% ownership.
o Pitches are important, but they are not the focal point in real life. Understanding the entrepreneur’s motivations, aptitude and attitude are more important than a slick pitch.
That said, if you have a consumer-oriented product, it seems that ST can act as a televised Kickstarter campaign, driving buyers to your site. Thus, companies that can pre-sell physical goods might consider going through the fanciful funding process – not to secure money from one of the celebrity panelists, but to jumpstart their sales and begin creating a national brand.
Rather than focusing on the more obvious takeaways (“entrepreneurs need to know their numbers”, “tell a story”, etc.), I want to highlight five more subtle lessons:
#1 – Your goal isn’t to get a deal; it is to shine on TV.
As I’ve calculated elsewhere,is just shy of $1.5m. Given an average pitch valuation of only $1million, whatever money the Sharks are offering is second-fiddle to maximizing the ROI of that free marketing.
As you only get that bump if your segment sees the light, applicants need to consider what makes for good TV. In many cases, walking away with the airing and all equity intact is an ideal scenario. If your product is good enough, you’ll have a dozen top investors call you post-airing anyway — and you’ll get to negotiate based on your ramped-up sales.
Outside The Tank Application: Figure out how to get earned media working for you before you chase funding. You’ll give up less equity to get the same investment.
#2 – Your image is your leverage.
Take the sharks themselves — they’re just as much actors as investors. Kevin isn’t a Dickensian villain in real life, nor is he nearly as rich as the promos would imply. But there’s a calculated shrewdness to his act (beyond its TV appeal): it allows him to structure deals that fit with his adopted persona.
Like a good poker player, he uses his style to dictate your play. He hardballs almost everyone on valuations, often swooping in like a capitalist vulture once their original offer has become the equivalent of carrion. He represents his offer as a form of mercy, and sets his terms accordingly. Mr. Wonderful is a savior, and saviors get discounts.
Those on the other side need to apply the same psychology. If you come across as desperate, your perceived value (and thus leverage) will drop accordingly. To get an optimal deal, you need a bidding war. This requires five sharks all believing that you’re interviewing them. If confidence isn’t your nature, bring a partner who has it, or else hire an acting coach to prep you. You can pay them from your winnings.
Outside The Tank Application: When fundraising, be thoughtful about assigning pitching duties. Don’t be afraid of bringing in a silver-tongue to focus purely on fundraising and PR. Giving them 5% can pay off itself several times over.
#3 – Choose your destiny before you pitch.
You’re either a lifestyle business or the next big thing. From a pitching perspective, there really isn’t any middle ground. The sharks (along with most investors) have a special pet peeve for those who don’t know which side of that fence they’re on.
Not every company aims to be a 100x unicorn, nor should they. Humble aspirations have their place. That said, entrepreneurs need to value their offerings accordingly. If you’re offering me a capped ceiling of 5x, now I care more about your floor.
If you’re going for a moonshot, don’t argue about the valuation. Do what you can to minimize your equity give (for whatever cash; you can get more later) and make sure you pick a shark that makes sense. You should probably focus onor guests like — both of whom value disruptive potential and love things that scale.
Outside The Tank Application: Some people are born hustlers, happy to work 80 hour weeks while eating stress for dinner. Some just want to create a better job for themselves. Don’t figure out which you are during your pitch discussion.
#4 – The creativity of your deal signals the strength of your offering.
Straight equity is both boring and the hallmark of a first-timer. I love that Shark Tank’s producers have uncuffed Kevin over the past few seasons. He’s now structuring deals that (mostly) reflect real life — including warrants, venture debt, royalties, and a variety of options.
This is important, because giving up an additional 5% of your equity because you didn’t make a creative offer or counter is going to haunt you.
Be prepared for them not to love your valuation. If you aren’t willing to budge, be willing to bet on yourself. For example, offer covenants that give them more equity if you don’t meet certain benchmarks — or a front-loaded royalty deal. Above all, remember that the value of your spot is in addition to whatever cash you pull in.
Outside The Tank Application: If you’re a lifestyle business, you need to preserve equity as much as possible. That’s your retirement and inheritance. Find ways of giving up alternate incentives. If you’re a moonshot, bet boldly on your upside.
#5 – Know what you want, and want what you really need.
There’s no better way to waste your opportunity than to walk in the tank without a clear explanation of what you’re looking for and why you expect it will help.
Yes, you probably need money. But for what? Just for salaries? Will it lower your cost-of-goods? Is your ask going to be enough if sales skyrocket post-airing?
Yes, you probably need advice. But what kind? Have you exhausted your own resources in advance, making sure to define the remaining gaps carefully? Do you know which shark you need?
Yes, you probably need access to their rolodex. But for what sort of contacts? Do you have a shortlist of dream licensing agencies, co-packers, marketing firms? Do you know who it is they know? Or are you relying on them to tell you?
Above all, what you ask for reflects what you have and your level of awareness about the seriousness of the gaps. If you come in unprepared, the world’s best mousetrap won’t save you.
Outside The Tank Application: Investors of all stripes want to leverage their time as much as their money. They want to pour gasoline on an existing fire, not help you find kindling or teach you how to chop wood. The more informed your ask, the better your chances of getting it.
What do you think about these business lessons? Do you have more to add or share? Join the discussion below.
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