"The company made $100k in profit in six months. Yet they only asked for $150k. What could they do with $250k in capital that they couldn’t do with the $100k that they already had? And if they waited another six months"
What could they do? It's not the money.
I consulted for someone who was on Shark Tank and got funded.
The reason you go on Shark Tank is:
a) You get national publicity and that national publicity gets you sales as well as all sort of attention. In the particular case that I am familiar with, sales increased 3 to 5x iirc. And that national publicity opens doors with companies and individuals in the business world. (We aren't talking about being featured on Techcrunch here - big deal.)
b) The Sharks really do have contacts, real world contacts, and do and did seal deals and get the particular product in question national distribution. Just like that.
Of course you try to make the best deal you can it is almost a sure bet given the right product and fit with the right Shark (which is generally taken care of by the Shark since they don't put money into what they don't know about or can't help with.)
And when you get a shot at being on a TV show with a national audience, you don't wait 9 months and hope you get picked for the next season. You jump at the opportunity. Even if you don't get funded the publicity alone is a no brainer.
Indeed, and the fact that the national publicity is the real value/deal-lubricator is why the show itself gets an equity or royalty stake in every company which appears:
"why the show itself gets an equity or royalty stake"
By the way, originally that was not the case it changed at some point. But that's a good thing as it motivates them to a) show follow ups "how are they doing?" (which cause a bump in sales) b) include the company in re-runs (which causes a bump in sales as well (I've correlated it).
Thats truly fascinating, makes one wonder if other networks will jump into the act once ABC has their first home run.
What worries me though is its only a matter of time until someone figures out they can do this with a startup reality show. If you think the prospect of a silicon valley reality show is bad now (glorifying the supposed "startup lifestyle", launch parties, founder drama, etc.) just wait until the network has a significant stake in the startups that they are promoting...
It depends what your goal is. If you need more funding or are looking for an exit then yes. If you need partnerships and your target companies lurk in the area you're getting publicity, then yes.
But if you don't need funding, an exit and aren't looking for partners, but are focusing 100% on your customers, then often this kind of publicity is an unhelpful distraction.
It's rare that when you get publicity among entrepreneurs and investors, you are also reaching your customers.
So for many businesses who don't need investment and don't need/want an exit, getting on HN, TC, Shark Tank, etc is less than unhelpful, it's a distraction and a waste of valuable time.
So why do so many young companies spend so much time courting the Arringtons and Cubans of this world? Because they are gagging for recognition, acknowledgement and the social proof that they're not completely wasting their time. It's a little like the need that most humans have for the existence of a God or big-daddy-in-the-sky that tells them they're doing OK and that it's OK to screw up occasionally.
This totally rocks. Over the years I have done what feels like a lot of M&A work but its nothing close to what a VC does day in and day out. My daughter is in DECA (which is a business oriented club in school) and she enjoys looking at the business aspects and seeing how folks to aren't emotionally invested in the product work through it. And DECA does role plays that are a lot like this, pitching to some experts your view of the business, so it helps with that as well.
Almost always, having one major investor with a lot of skin in the game is better
than a “party round” with lots of people in for a small amount. When the company
needs help with a “party round” no one has enough at stake to do real work to help.
Conversely, when a single investor has real money at stake, then they have real
upside to help the company grow, and real money at risk if the company is in
trouble, so will be there when help is needed.
If you like Shark Tank definitely check out the Canadian version of Dragons' Den. It is more focused on the pitch rather than the at-home story of the people pitching. You can find most of the episodes on YouTube.
I always think "sharks" on shark tank are arrogant. May be it is due to creating "drama" on the show. Anyways, I feel their valuations are too low for lot of profitable (or revenue generating) companies. Does anyone else think the same?
I don't doubt that ABC approves of 'drama' since it really does help in the ratings. That said, I don't think your other two claims are well supported, that the sharks are 'arrogant' or that their valuations are too low.
Lets look at the valuations first, in any open market where prices are flexible buyers tend to feel folks ask to much and sellers tend to thing folks offer too little. If you walk away from a deal feeling like you didn't pay enough for something or that you sold it for too much money, then that market is out of balance. There are three sharks, I've not seen any credible evidence that they have any anticompetitive agreements in place, basically they seem able (and willing) to jump into another shark's negotiation and screw it up to gain leverage. So of the three of them the valuations are no doubt precisely correct. You might find an investor who is willing to give a higher valuation, but if you did that with full disclosure that these three would not agree to a higher valuation you might find it hard to justify. This disparity often arises from emotional involvement with the concept or the company. The wine-by-the-glass[1][2] guy is a classic example. They disagreed on value, he turned them down, and kept cranking. Were they 'wrong' ? No, the valuation to them was $x and to the owner $y, but they see a different business than the owner does.
As for arrogance, these folks seem to get a lot of pitches, I'm sure being on TV doesn't help with reducing the volume. The weird thing is, they still listen. You can hear that in their analysis. Arrogance would have them not listening and just telling the person pitching is wrong, but they give them a chance to explain, sometimes repeatedly. Its clear that some of the people coming on the show have done exactly zero homework, haven't even done a network search for starting a business or what it takes to run a business. I am really impatient with folks like that but the sharks take it in stride.
The fact that they allow horrible entrepreneurs on the show tells me that it's more about making an entertaining show than getting some good companies through the door.
Well they are talking relatively small rounds as well, I concur that is to make it entertaining. To someone like a Mark Cuban spending $50K - $100K is not going to materially change his future outlook, its more like playing the ponies. It is certainly more entertaining than playing blackjack too.
Sometimes they act like spoilt children, especially when they get all sulky and declare themselves out because the entrepreneur wants to negotiate or took too many seconds to decide. That's par for the course with reality tv although I don't think the manufactured drama and cliffhangers are necessary, the process is what's interesting not the final answer.
I don't think their valuations are crazy, they're aggressive but they usually have plausible justifications for them. What is crazy is the gulf between what they do and the kind of startups here - just imagine a couple tweeners with half an iphone app successfully raising a million bucks on Shark Tank.
I think the sharks are based as hell but my favorite part is in the opening sequence when they're all getting out of private jets and sports cars and gazing over the skyline of manhattan. If I ever have the fortune to become an Angel, my opening sequence is going to be me putting on a pair of shades, and then a falcon swoops in and lands on my arm.
been watching shark tank off and on for a few seasons, love it!
always wondered why it didn't provoke much discussion in Silicon Valley... at least that I was aware of. most of my friends don't even know about the show. Until now at least :)
What's been most interesting are the types of companies and the investor perspectives that seem to vary enough from what you hear about here in Silicon Valley that it makes you think...
The bar for positive reactions from the sharks is definitely to have "traction" in terms of real revenue/sales... going in front of them and saying you have thousands or millions of users probably won't cut it (except maybe with Cuban) but who knows, haven't seen that sort of company present yet...
on one of the past seasons, there was a Silicon Valley type startup that got acquired by Chegg in 2011 called NoteHall
What could they do? It's not the money.
I consulted for someone who was on Shark Tank and got funded.
The reason you go on Shark Tank is:
a) You get national publicity and that national publicity gets you sales as well as all sort of attention. In the particular case that I am familiar with, sales increased 3 to 5x iirc. And that national publicity opens doors with companies and individuals in the business world. (We aren't talking about being featured on Techcrunch here - big deal.)
b) The Sharks really do have contacts, real world contacts, and do and did seal deals and get the particular product in question national distribution. Just like that.
Of course you try to make the best deal you can it is almost a sure bet given the right product and fit with the right Shark (which is generally taken care of by the Shark since they don't put money into what they don't know about or can't help with.)
And when you get a shot at being on a TV show with a national audience, you don't wait 9 months and hope you get picked for the next season. You jump at the opportunity. Even if you don't get funded the publicity alone is a no brainer.