Shark Tank is Not the Real World
Shark Tank is Not the Real World
by Chris Sundberg
Posted on 09/04/2009
Alex over at the Texas Startup Blog has had several posts about this new TV show called Shark Tank.
I've subscribed to the RSS feed on Hulu and have watched all the current shows.
Verdict? I really like the show. It's got drama, hope, heroes, bad guys.... It's nice to see a major network giving an inside look of the VC/Angel world.
But I'm afraid that this show might be giving would-be entrepreneurs the wrong idea of how an investment round works in the real world. You will probably never walk into a room by yourself with several 'sharks' and be asked to even verbally commit to a deal. You'll be able to take your lawyer, accountant, advisors, etc. If the 'sharks' don't allow this, then you should probably walk away from the deal. Another thing that bothers me is that the valuations and equity stakes that are offered up in those segments don't seem realistic to me.
Feel free to watch the show. It's entertaining, and interesting. But don't think you're going to walk in to pitch an investor or group of investors and it's going to go exactly like it does on TV.
Being stranded on a desert island isn't much like being on Lost either. FYI
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Hi Rusel,
So sorry for the delayed response. What I mean was that the sharks were asking for too much equity in return for their investments. Meaning that they undervalued the companies. I'm working on a post about valuations that might clear that up a little more.
Basically, if one of the sharks said that s/he would invest $10,000 for 50% stake, the shark is putting a $20,000 ($10,000/50% OR $10,000x2) valuation on the company. If the entrepreneur is asking for $10,000 for a 10% stake, then s/he is valuing the company at $100,000 ($10,000/10% or $10,000x10). Typically the sharks "bully" the startups into lower valuations (mostly because they typically outnumber the entrepreneurs).
Thanks for reading!
I really like Shark Tank too. I'm interested in getting some venture capital in a few projects so it appeals to me and I admire a lot of the entrepreneurs on the show. When you mentioned the equity stakes as "not realistic", did you mean they were too high or too low?
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