If you haven’t watched Shark Tank on CNBC, you are missing one heck of a show. It’s filled with the drama and ego of its rich and successful investor panel pitted against novice startup CEOs ranging from sweet little girls to guys who surf for a living.

The goal of the show is simple: Present your business idea and if you survive your immersion into the tank, you could receive millions in investment money and the guidance of business geniuses who are profoundly successful.

What’s the catch?

It’s simple. You have to have a business idea that can make money. Because of the broad scope of the panelists, they have experience with almost any type of business venture. Last season I watched with awe as the panel got excited about cake balls on a stick. I am not a food marketing guy but one or more of The Sharks have extensive experience with food-based enterprises. I would never claim to know exactly what “The Sharks” might like but I will tell you this: they know how to evaluate a deal and if you follow the basic formula, you too can give away half of your company on TV if you are so inclined.

Valuation

When a new “contestant” enters the tank, the first things they tell The Sharks is how much money they want and how much of their equity they are offering. Most Sharks look surprised or don’t react at all. Next, the contestant provides a profile of their company, explaining what they do and why they want the money. Then the negotiations begin. What do The Sharks want? It goes like this:

  • Often, they want to control the contestant’s company by taking more of the company than the founders, but not always.
  • They look for leverage opportunities with their existing businesses and licensing agents.
  • Sometimes they structure deals which pay them back their investment without diminishing their equity position.
  • They want to see something proprietary: a patent is best but a process or a unique market position, something the company can own exclusively is ideal.

They are quickly calculating what they can do to recoup their investment quickly by using their money and connections. They generally won’t go for small equity positions unless the company’s management team in fully formed, their product is complete and selling well in the right markets and all that’s required is gas in the tank to make it go. Also, they hate fads. What they want is a sustainable business model that can multiply quickly while using little of their own precious time.

People

It’s clear to me The Sharks are also evaluating the individuals who are presenting their businesses. All presenters have passion, they all know their business but if they don’t know their numbers, The Sharks will embarrass them and mutter the dreaded phrase “I’m Out.”

They look for salesmanship. A good sales presentation that is passionate and imaginative keeps The Sharks in the game. Does that guarantee an investment? No. The Sharks see a good salesman as the front man or woman for infomercials and presentations they need to do. The want personality and command of the market, they want you to own your space.

They also look at life situation. If you are 70 and otherwise retired you are less likely to get a deal as the operating CEO than if you are the 30-something genius or middle aged housewife who is now back in the game. The Sharks are constantly evaluating how you look, what you say and the market for your product.

Markets

Those Sharks are all about marketing. They know what works in the market because they are in so many of them. Mark Cuban owns at least 81 companies according to his website. I don’t know how involved he is with each one, but I bet he understands them well enough to know their strategies, market positions, and competition. With six sharks, each with similar experience and success, they can practically smell a great product and know when it will mesh with one of their existing distribution systems.

There are two distinct types of deals they seem to like: licensing deals and distribution deals.

In a licensing deal, they offer a sum of money for a big percentage of the company and promise introductions to their Rolodex. Several times, they offered a sum of cash that must be paid back before a licensing deal royalty will be split by The Shark and The Entrepreneur. In each case, they are loaning the company money and also providing the means to pay it back. These licensing deals take place when manufacturing is required or when consumer products can’t get traction on their own.

Distribution deals are done when The Sharks see that a proprietary process has been developed and can be scaled quickly. In the case of food products, an introduction to a commercial kitchen would be the 1st step. Move The Entrepreneur out of the garage and into a professional kitchen. Distribution deals seem to favor The Entrepreneur who has shown extreme success in a limited number of locations. This means The Sharks can broaden the distribution with similar or better results. The payback comes to The Sharks as a percentage of the profit from operations. This, by the way, is nearly perfect leverage, investing at the highest level because once everything works, the checks just keep coming.

What happens if you don’t get funded?

Not getting funded can be a blessing, since many of those turned down by The Sharks have received major boosts in online sales and attracted other investors who know how to use what The Entrepreneur has. Here’s a great example of what can happen after an unsuccessful appearance on Shark Tank.  A quote from Jamie Siminoff, CEO of DoorBot says:

“I showed them (the investors who came in after Shark Tank) the numbers and what the show has done for us (DoorBot) in terms of awareness and everything else. If you’re a consumer brand, I don’t think there’s anything else quite like [“Shark Tank”] that can do that for you.” You can read the whole story here:

 The takeaway

A show like this might not have succeeded years ago, when finance, capitalization, equity, and profits were all thought to be the tools of economists and business school grads. Now, in the world of celebrity entrepreneurs with TV shows of their own, people like Donald Trump have become icons for society, beacons of light to others who aspire to be, do and have what he does.

This is no accident; it’s the progressive education that started with miracle medicine men in stagecoaches back in the 1800’s and extends right through to the 21st century twenty-something billionaires who sold their internet businesses for a fortune. Entrepreneurship is now part of our culture and everyone gets to see how it’s done by the most successful of all.

If you have what it takes and think your product or service can withstand a good old shark attack, then go for it. Get prepared first for the best possible chance of success. The information in this blog post is by no means complete but I think it’s a great overview of what any entrepreneur needs to raise money from investors, whether they’re Sharks or not.

If you need some help, let me know; been there, done that.

Think you have what it takes? Apply and let them know you are ready to be thrown into The Shark Tank! Let me know how it goes.

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