INTRO: Shark Tank is the
most popular business/venture capital show in the world. I mean what’s more motivating that watching
aspiring entrepreneurs try to pitch their ideas and take their companies to the next level. But,
while Shark Tank is no doubt entertaining, that’s all it should be used for: entertainment. Shark
Tank is a terrible representation when it comes to what goes down in a real VC pitch. So much
of what we see is completely staged or just for the camera. Not to mention, the producers like
to warp what really happens to make it more entertaining for us viewers. For example,
an entrepreneur may only stumble once in an hour long pitch. But given that
these pitches are condensed into just 10 to 15 minutes, it seems like their entire pitch was a
trainwreck. Not to mention, the business advice that the Sharks give is often hit or miss. Now,
don’t get me wrong here, Shark tank is a phenomenal show and I’ve been a fan for
several years. But, we need to be able to separate between entertainment and
real entrepreneurship because Shark Tank is not that great when it comes to the latter.
PUBLICITY STUNT:
Starting off with the biggest issue, no one on Shark Tank is actually there to make a deal.
You see, with real VCs, the only reason anyone is there is to make a deal. Investors want to invest
their money to make returns while entrepreneurs need an investment to grow their business. But,
on Shark Tank, the only reason anyone is there is for publicity. If an entrepreneur is there only to
make a deal, then they’re just naive. Most of them know that the second their episode airs,
their business is gonna blow up. This is one of the reason that Shark Tank businesses have such
a high success rate. In fact, only 6% of Shark Tank businesses have gone out of business. Once
they get some momentum from Shark Tank, they’re able to achieve the economies of scale that
they need to turn their startup into a legitimate company. But, what this also means is that getting
an investment from the Sharks themselves is not main reason they’re there. The real benefit of
pitching on the tank is not convincing the sharks but convincing you the viewer. So,
really it’s just one big infomercial. Meanwhile, from the sharks’ perspective,
they have no monetary reason to make deals either. The primary reason the sharks are there is to
promote their own personal brand image. I mean just think about this, how much money could the
sharks even make from these deals in the first place. Take Mark Cuban for example. His median
investment size is $125,000 and his median stake is 20%. Virtually none of deals that
he makes have any chance of reaching the billion dollar mark. More times than not, these are small
niche businesses that would be lucky to reach the $10 million mark. Maybe the strongest out
of them could reach a $100 million. Now, from the entrepreneurs perspective, this is awesome.
If you own a $100 million business or even a $10 million business, you’re set for life. But,
how much does this matter for Mark. A 20% stake in a $10 million business is only $2 million.
With a net worth of $5.83 billion, this increases his net worth by a whopping 0.03%. Even if we’re
talking about a $100 million cash out, that’s only $20 million for Mark or a 0.3% increase in
net worth. And that’s if his stake didn’t get watered down by new investors. Now of course,
the other Sharks aren’t as rich as Mark Cuban, but even for them, they’d be lucky to grow their
net worths by 10% through all the investments they ever make on Shark Tank. The same, however,
cannot be said about the publicity they receive. How many more people will recognize the Mavericks
because they see Mark Cuban on TV every week? How many more people will watch QVC because they saw
Lori on Shark Tank? How many people didn’t even know about FUBU until they say Daymond on Shark
Tank? This is where the real money is for the Sharks. Take the Mavericks for example. Until
Shark Tank started gaining traction, they were worth about $400 million. But, over the last 10
years, they’ve grown all the way to $2.7 billion which is a $2.3 billion profit for Cuban. Now,
you could argue that this gain in valuation is due to the team itself becoming better. But,
to that I would argue that the main reason the team became better was because of the publicity
Mark got the team. As the Mavericks become more recognizable, they become a more desirable team
to play for which of course attracts better talent. This same argument could be made
for the brand values of FUBU and the Herjavec group as well. Clearly, for both the sharks and
the entrepreneurs, the money is not in the deal, it’s in the publicity. So, how could such a show
possibly set realistic expectations regarding venture capital for aspiring entrepreneurs.
SUCCESS PORN: Given that much of
the show is just one big publicity stunt, I don’t think you’d be surprised to hear that
a significant portion of the deals that are made on air never make it to the other side. In fact,
with most sharks the odds of the deal being completed are basically just a coinflip. The only
shark that has a high completion rate is Mark who comes in at 87.5%. And honestly, this is likely
a strategic play by Mark as well. The investments that he makes are not consequential to his wealth,
so being a man of his word is more important than potentially making a bad investment. The average
viewer will likely never see these stats, but I’m sure the people who actually make pitches are well
aware of them. When they see that Mark has a far higher closing rate than the other Sharks,
they’ll likely be motivated to get a deal with Mark. On TV, this will come of as entrepreneurs
consistently choosing Mark over everyone else which is again great for his brand image. Now,
choosing to not complete a deal because the fundamentals of the startup don’t match up is
completely fine and perfectly understandable. The problem, however, is that the downsides
of business are rarely shown. The overwhelming majority of the show has to do with showing off
this idealistic vision of success. We see sharks shaking hands in these big corporate rooms in
front of these giant mansions. But, this is not what happens in real life even for rich
businessmen like the sharks. Most of these guys are actually pretty low key and live pretty modest
lives, but this doesn’t align with the producers’ vision, so they just make stuff up. A perfect
example of this is with Chris Sacca. Chris is literally what this show is supposed to be about.
Venture capitalists and startups that make it big. Chris was an early investor in Uber and this
made him a billionaire, so you would think that he fits the mold perfectly. But, his real life wasn’t
nearly exciting enough for the show. First the producers asked to film at his house, but when
they realized he lived in a 3 bedroom house in Truckee, California, they were quick to back out.
Next, they asked him to film in front of his private jet, but Chris doesn’t actually own
a private jet. While he does fly private, he finds that it’s far more economical to simply
rent a jet when he needs one. Hearing this, they wanted to shoot in front his supercars and boats,
but the most expensive car that Chris owns is a Tesla and he doesn’t own a boat. Running out of
options, they asked to film at his HQ, but his VC firm doesn’t have a fancy HQ either. In fact,
he does most of his deals from home to spend more time with his family. According to Chris,
the producers quote “didn’t know how to make me look rich to America.” And they told him that he
has to overcompensate for the shirt that he wears. They eventually decided to just fake
the look. They filmed in a random conference room of one of the company’s that Chris owns.
And they staged some sort of billionaire wine celebration in someone's patio. When you’re
struggling to portray a real VC billionaire to the public, there’s no question that there’s
something wrong with how you’re trying to portray them. Instead of giving us a real look into the
lives of the sharks and the entrepreneurs, more times than not, we’re just shown success p**n.
THE TANK:
Aside from ulterior motives and misleading visions of success, what goes on in the tank is also not
something to learn from. First of all, the vast majority of businesses that come onto Shark Tank
are product oriented businesses. This isn’t by random chance. The producers specifically choose
products that viewers can relate to. Meanwhile, the businesses that generally want to be on Shark
Tank are companies that can benefit from public exposure. If your business provides back end
support for Walmart, this wouldn’t be all that fun for viewers to watch. The problem, however,
is that most successful startups are exactly this. When was the last time you heard about a clothing
or food startup that makes it to a billion dollars. Almost all unicorns have to do with tech,
yet we rarely see this on the show. So, if you’re a real entrepreneur, you would have a much better
shot at making it if you try to fulfill some niche role in tech than trying to start any of
the businesses on the show. If you do start a business and are trying to raise money,
you shouldn’t take inspiration from Shark Tank’s valuation because more times than not, they’re
rip offs. I’m sure we’re all familiar with those entrepenerus that offer like 5% of their company
for $500,000. This is a terrible idea in the tank because the Sharks are gonna rip you apart. But,
in the real VC world, this is extremely common. Most of the businesses that we see on Shark Tank
are in what you would call Series A Funding. Series A is usually the first time entrepreneurs
ask VCs to invest. Until this point, the startup is funded by the entrpreneuers and their friends
and family. And the average valuation of Series A funding isn’t half a million or one million like
we see on Shark Tank. The average valuation is $22 million and the average raised is $13 million.
Even Seed Funding rounds which come before Series A have higher valuations than we see
on Shark Tank. The average seed valuation as of 2018 was nearly $6 million. And these businesses
generally have zero revenue. So, to see businesses with 6 figures if not 7 figures in sales get lower
valuations on Shark Tank is quite comical. The only reason the Sharks are able to demand such
high valuations is because of they’re essentially celebrity endorsers. If you’re simply looking for
money, you’ll be able find far more reasonable valuations amongst real VC firms. Not to mention,
you almost certainly wont be ridiculed. VC investors aren’t gonna tell you that you’re
dead to them. If you come back to them in a later round of funding with more results,
they may very well invest because all they care about is returns. They don’t care about
upholding some sort of TV persona. Something else to note is that you wont have 10 seconds
to accept a deal either. Honestly, this is pretty ridiculous. Selling a portion of your
company especially at a lower valuation than you asked for is a pretty big decision. But,
the sharks rarely give you time to think or talk about it. So, if you’re truly looking to
raise money, don’t take any inspiration from Shark Tank because you’re just asking to be ripped off.
THE TRUTH: In the end, I know this
video has been quite critical about Shark Tank, but it’s not all bad. For many, Shark Tank may be
what motivates them to take their first step into entrepreneurship. And Shark Tank does teach people
about the basic traits that investors look for and how to raise money. But, Shark Tank shouldn’t be
taken any more seriously than this. Most of the entrepreneurs and sharks are there for publicity,
not to make deals. Similarly, much of the show is built upon this fake vision of success instead
of the real grind behind businesses. And most importantly, in terms of actually raising money,
Shark Tank isn’t all that great. Now of course, there are some exceptions. If you’re a product
oriented business, want publicity, and would like a celebrity businessperson on your side,
then Shark Tank could be an option for you. But, for most entrepreneurs, tech and traditional
VC firms are likely your best bets and you shouldn’t take Shark Tank as anything more
than just entertainment. But that’s just what I think. Do you think Shark Tank should offer
a more realistic view into VC funding? Comment that down below. Also, drop a like if you’re a fan
of Shark Tank for entertainment. And of course, consider joining our discord community to suggest
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