
ABC takes 5% equity or 2% royalty from all companies that appear on Shark Tank - seanmccann
http://a.abc.com/media/primetime/sharktank/SharkTank3OpenCallApplication.pdf
======
drewcrawford
The thing that actually scared me the most was this:

> Release of Unknown Claims. I acknowledge that there is a possibility that
> after my execution of this Agreement, I may discover facts or incur or
> suffer claims which were unknown or unsuspected at the time this Agreement
> was executed and which, if known by me at that time, may have materially
> affected my decision to execute this Agreement.

...

> I have been advised of the existence of Section 1542 of the California Civil
> Code which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
> CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME
> OF EXECUTING THE RELEASE

...

> I and the Releasing Parties knowingly and voluntarily waive the provisions
> of Section 1542, as well as any other statute, law or rule of similar
> effect, and acknowledge and agree that this waiver is an essential and
> material term of this Agreement...

What the actual fuck. Can a contract lawyer chime in on whether this term is
enforceable? Can a release release the very laws that regulate releases? In
California?

IMHO lawsuits are like an exception handler--they're what you do when the
normal way of doing business fails. There are people who use exceptions as
part of handling normal conditions and there are people who use lawsuits as a
normative way of doing business, and I try very hard to work with neither with
about the same level of distaste. Documents like this make it pretty clear
what side of the line they're on, as this clause only comes about with an army
of lawyers with nothing better to do.

~~~
lisper
The part that should scare you the most is the arbitration clause. NEVER sign
a contract with an arbitration clause, ESPECIALLY if you are an individual and
the counterparty is a large corporation. Arbitrators are corporate puppets,
and an arbitration clause is essentially a license to screw you in whatever
way they want. I learned this lesson first hand the hard way.

~~~
temphn
A word in favor of arbitration clauses.

The big advantage of an arbitration clause is that the outcome of a contract
dispute is much more predictable and financially bounded in magnitude. The
rule of law is working when people don't need to go to court to know how
things will turn out. That is, the interpretation of the law shouldn't depend
on the moods of the lawyer or the judge anymore than the interpretation of a
piece of code should depend on the server it's running on.

If you cannot financially bound the cost of a contract dispute, you need to
bake the cost of expensive lawsuits into the price of your product. And if you
look at most class action judgments, a very large amount of the money (often
the lion's share) goes to the lawyers rather than the aggrieved party.

With the recent Supreme Court rulings [1,2], it is now possible to include an
incantation in your contracts that enables truly binding arbitration:

    
    
      Arbitrator [has] exclusive authority to resolve any 
      dispute relating to the [Agreement’s] enforceability 
      including...any claim that all or any part of this 
      Agreement is void or voidable. 
    

If you are writing a contract of any significance, you should include binding
arbitration, you should include this arbitration language, and you should urge
the other party to carefully read it up front to forestall any disputes down
the line.

One last thought: you might say, ok, that's fine for the business, but what
about the individual who doesn't have the time to read 20-page constantly
changing terms of service (TOS) agreements? One answer could be a simple
contract review site/search engine. For most large companies, the
TOS/contracts are the same for all customers. If you actually care about what
you're signing before you're signing it (and in some cases, like large
enterprise deals, you really do), it could be interesting to put a TOS review
site together which drew traffic from reviews of high-volume free TOS's (like
Facebook's or Google's) while monetizing by reviewing confidential or lower-
volume TOS's (like Yammer or Salesforce).

If you pulled a few thousand TOS from across the web, you really could see
whether a provision was truly standard, how many other sites have a similar
provision, whether that provision has ever been litigated, and similar
metrics. This is one vertical among many in the legal field that is ripe for
attack by computer science.

[1] [http://www.scotusblog.com/case-files/cases/rent-a-center-
v-j...](http://www.scotusblog.com/case-files/cases/rent-a-center-v-jackson)

[2] [http://www.scotusblog.com/case-files/cases/att-mobility-v-
co...](http://www.scotusblog.com/case-files/cases/att-mobility-v-concepcion/)

~~~
lisper
> The big advantage of an arbitration clause is that the outcome of a contract
> dispute is much more predictable

That is indeed a big advantage, but not for you. If you are an individual and
the counterparty is a large corporation, the predictable outcome is that you
will (almost certainly) lose, notwithstanding the merits of the case.

------
fredsters_s
How is everyone condoning this?! This is fucking insane.

The logic is NOT we give you free advertising -> you owe us monies. The logic
is you provide amusing filler in the context of a targeted program and we sell
advertising the audience of that show. Just like every other show on our
network.

So any return ABC would get from this is logically abnormal, and I would argue
morally abhorrent. On what other show does this happen? Would American Idol
demand rights to future royalties of all auditioning acts? Would that be seen
as fair?

~~~
droithomme
I agree with you. ABC is granted access to the limited spectrum of the public
airwaves to run their network. It's been accepted that some amount of
advertising is allowed with this privilege, but it is not acceptable to run
advertising 24 hours a day or to use the public airwaves to back specific
political candidates. Using their public license in this way is a violation of
the public trust. Their broadcast license should be revoked. Not that it will
of course.

If they were cable only they could do as they wish, but that's not the case.

~~~
crusso
Eek, that's a pretty good argument. Severely limited resources should probably
be used for public good. There are plenty of cable channels upon which
companies can make a buck.

------
hristov
I was wondering if they take this even if you do not get a deal, and that is
true. They have the option to take the 5% equity or 2% royalties when your get
your presentation on the air, even if it does not result in a deal.
Furthermore, it is their choice whether to take the equity or royalties.

I suppose their thinking is that you get advertising when your presentation
goes on the air, and you should pay them equity for that.

But it would really suck if you get your presentation on the air and you get
completely mocked and humiliated (which often happens on shark tank) and then
the production company still decides to take 5% equity out of you.

~~~
Arjuna
In addition to what you have already noted, I found this sentence interesting:

 _"The Option shall also vest with respect to businesses other than my
Business if I enter into a binding agreement with a shark regarding such other
businesses during the two (2) years following my introduction to the shark."_

~~~
rhizome
Like a temp agency or recruiter's agreement with an employer regarding
employees.

------
aresant
Each company is essentially getting 5-minutes of free & focused advertising to
a massive, premium audience.

Not to mention the potential to have incredible investors jump on board &
exposure to thousands of other potential investors.

Seems like a good deal.

~~~
bprater
They often do short clips of previous "contestants". Quite often, their
business has grown successfully, even without an investment because of the
exposure they gained on the show.

I'd say that if you get on the show, present well and have a decent business
model -- you're going to gain a ton of interest after the show airs.

~~~
mikecane
>>>Quite often, their business has grown successfully, even without an
investment because of the exposure they gained on the show.

That's of the ones they show. You think they're going to show the ones where
it didn't help at all?

~~~
zootar
They do show some businesses that failed. In these cases, the implication is
that the sharks' decision not to invest is vindicated.

~~~
frankdenbow
Example? I've watched most episodes and don't remember ever seeing this.

------
rwhitman
I was forwarded this email from one of the producers before it aired back in
2009. No mention of equity. They probably wised up after they saw how
successful some contestants were:

From: TrXXX <XXX@gmail.com> Date: May 27, 2009 12:46:22 PM PDT To: TriXXX
<XXX@gmail.com> Subject: Shark Tank on ABC

Hello,

My name is TrXXX and I'm contacting you from Mark Burnett Productions and ABC
regarding a new show called Shark Tank. See the trailer here:
<http://abc.go.com/primetime/sharktank/index?pn=index>

It's incredibly hard to get a small business loan from a bank right now. This
show provides the opportunity for a smart entrepreneur or inventor to pitch a
product/idea or established business to a group of billionaire investors. We
are looking specifically for a up and coming fashion designer, someone who has
a line but wants to expand their business.

The premise of Shark Tank is simple: you would approach a panel of billionaire
investors (see list below) to explain how much money you would need and how
much stake they would receive in turn, and get your company, project or
invention more capital to either get started or expand the business. The panel
invests their own money if they decide to go with your proposal, and the
outcome could be an amazing opportunity.

If you are interested in being on this show or have an email list you can
circulate this announcement to, please do so. We are trying to extend this
opportunity to as many people as possible.

Directions: each interested person should email me directly (XXX@gmail.com)
with the following information:

Name Occupation Description of Business/Invention (non-confidential) Phone
number Email Photo

Once I receive this, I will send an email that you need to reply to. From
there, you can receive an application. Don't wait, we are filming this show in
July and are screening applicants now.

Panel of Investors:

Robert Herjavec (Tech Genius) Daymond John (Founder of FUBU clothing) Barbara
Corcoran (Real Estate Mogul)

Kevin O'Leary (Venture Capitalist) Kevin Harrington (Infomercial King)

This show has been previously produced in Japan, the UK and Canada under the
name, "Dragon's Den." <http://www.youtube.com/watch?v=zVo6e7Y8wBo>
<[http://www.youtube.com/watch?v=zVo6e7Y8wBo>](http://www.youtube.com/watch?v=zVo6e7Y8wBo>);

~~~
praptak
> No mention of equity.

This does not mean anything - mentioning this upfront would give you time to
think whether the deal is fair.

People who want you to sign a bad contract won't state this upfront. I'd
rather expect something along the lines "Oh yeah and we also need your
signature on this" after you have already invested your time and it seems rude
to refuse those people who were so nice to you.

------
bprater
I heard about Shark Tank here on Hacker News. I grabbed a couple episodes and
I was hooked.

More than anything -- watch for the patterns of investments the sharks make.
Consistently, they love companies that have done all the early groundwork and
are making a profit of ~$100k-$250k in the last year.

Also, if you are a hacker and also a fan of Mark Cuban, catch seasons two and
three. He's a ton of fun to watch!

~~~
bmelton
Agreed - the only way to get a really favorable deal, where favorable is "the
best kind of deal they offer, but not necessarily good" is to have a large
order that you can't finance and to not need them for anything else.

~~~
uptown
The best deals some of the participants on that show make is no deal. They get
the TV exposure, and potentially some validation from the Sharks, but choose
not to accept the terms of their offer. If you can take that and use it to
market yourself as an "As Seen on The Shark Tank" product, you've got much of
the benefit without giving up a major equity stake to the sharks. With that
said, this contract seems to indicate that ABC can take a share of your
company whether you choose to enter into an agreement with a shark or not ...
so you're trading TV time for a percentage of equity.

Also of interest ... I've read a few post-mortems from companies that appeared
on TV, and every one of them said their portrayal had been edited for time
(actual negotiations had gone as long as an hour in some cases) yet fair.

------
ValG
I could be wrong, but I looked into Shark Tank a little while ago and I don't
remember this 5% equity or 2% royalty demand. It is something that would have
really stood out to me. I think it's new and based on the popularity of the
show. There are a few companies that I remember specifically (ChordBuddy and
Scottevest) that I have a hard time believing would agree to appear on the
show given those equity/royalty demands (based on how the founders acted with
the sharks). It's going to scare away many potential businesses, and I can't
imagine going on that show knowing that you're already down 5% in equity...

Can anyone confirm if this is new or not?

------
benologist
It doesn't really surprise me that they take equity, at least they only do it
if you actually get a deal - it's strange that we haven't seen anyone take
that into consideration as they sign away 51 - 80 percent of their business
although it's probably just cut out.

What amazes me most about Shark Tank is the difference between "tech
companies" and those companies .... they won't hesitate to tell someone their
business isn't even worth $100k whilst 'companies' with half a product and no
users raise seed rounds at multi-million dollar valuations.

Edit: actually was wrong about them only doing it if you take a deal heh.

~~~
abjr
They never really tell you, but I think most of these deals fall apart after
the show airs:

[http://www.inc.com/erik-sherman/shark-tank-vc-handshake-
deal...](http://www.inc.com/erik-sherman/shark-tank-vc-handshake-deal-fell-
through.html)

~~~
RobAtticus
Not saying you're wrong, but that article mentions one specific instance where
the deal did not go through.

~~~
dwynings
About 3 minutes into the podcast, Cuban says about 50% of his deals fall
through after due-diligence.

[http://insidetv.ew.com/2012/03/02/podcast-mark-cuban-
shark-t...](http://insidetv.ew.com/2012/03/02/podcast-mark-cuban-shark-tank-
jeremy-lin/)

------
nateberkopec
I appeared on the first season of Shark Tank ('The Factionist' t-shirt
company) and I can confirm that this is true.

The 5% equity choice is new, but doesn't surprise me. When I was on the first
season it was only the 2% lifetime royalty. It's not actually that bad of a
deal because the royalty was taken out of net income - NOT top-line revenue.
So, even if Zynga was on Shark Tank they wouldn't have owed ABC a lot of
money.

I was called about once a year after the show by the show's lawyers to collect
the royalty. I had shut down the business immediately after the show aired,
though, so I never did end up sending them a check.

2% of future net income isn't really a bad deal for most of the kinds of
businesses that appear on Shark Tank. None of these companies are VC-
investable, and these kinds of royalty-for-placement deals are common in the
infomercial industry (which is what a lot of Shark Tank businesses are -
informercial products).

I worked for Barbara Corcoran for a year after I was on the show - she's a
class act and probably the one Shark that takes her investments seriously.

I've answered several questions about my Shark Tank experience on Quora:
[http://www.quora.com/Nate-Berkopec/answers/Shark-Tank-TV-
ser...](http://www.quora.com/Nate-Berkopec/answers/Shark-Tank-TV-series)

------
jstanley
For British people: Shark Tank is basically Dragon's Den.

~~~
shaggyfrog
Dragons' Den is a show/brand that is used for several other countries,
including Canada.

I wonder if Shark Tank has better/worse terms than those other shows.

~~~
covercash
Shark Robert Herjavec was originally on Dragons' Den in Canada (seasons 1-6).

~~~
rwhitman
Kevin O'Leary was also on Canadian Dragon's Den

~~~
redthrowaway
O'Leary's on Shark Tank? Between that and the Lang/O'Leary Exchange, I guess
he's transitioned to TV full-time now. Good for him, I guess. Still hate the
shmuck.

------
salimmadjd
Not worth it! If you have a good business the quick airtime you get from ABC
show is not that valuable. There is a huge gap between watching something on
TV and converting that into customers, especially for product-based
businesses.

Websites are a bit different. Remember the grandma nanny? I actually looked
them up out of curiosity, but even then, 5% is a lot for a few hundred maybe
thousand viewers.

If anything, the show should pay the contestants. They are getting lots of
viewers and selling a ton of advertising from hard working entrepreneurs.

------
wtvanhest
2% of "operating profits" is zero dollars for all businesses since no startup
makes operating profits. In the event they are not acquired and actually IPO
2% of profits for most businesses is still a very small number.

Why even put that in the document? Further, the document leaves so much open
to negotiation it is basically guaranteeing if you are successful you will
have to go through a lengthy legal proceeding. Its almost as if the attorneys
wanted to figure out a way to make more fees later.

~~~
seanmccann
"The Shark Tank Entities" get to choose, and in some cases the 2% royalty is
superior. There are many companies that come on the show with a lot of revenue
(and profit) but the sustainability of the company might be questionable.

~~~
wtvanhest
I haven't seen the show in a while and forgot about the types of companies
that go on there. Even still it is 2% of operating profit which will still be
a small number. If it were 2% of Rev that would be hugely different

------
dkrich
This show is so ri-goddamned-diculous that it is entertaining. Maybe two of
the "sharks" have any experience running actual businesses day-to-day and as
such, the questions they ask (or at least the one's shown) are completely
idiotic. I know, they are all insanely wealthy, but there is a big difference
between being a real estate broker or selling a billion trinkets on QVC and
running business operations for a company on an ongoing basis.

Not to mention the fact that half the time people go on the show with massive
sales in major outlets but desperately need $60k from Damon John to get over
the hump. The other half they have no sales but turn down an offer from Mark
Cuban because it is 15% more of their crappy company than they want to give
away. Is there any struggling entrepreneur in the real world who would
actually turn down ANY offer from Mark Cuban?

I've also heard that a lot of the deals don't close because the contestants
lie about sales or something of the like.

All that said I do watch the show. After all it is entertaining and Kevin
O'Leary's quotes are hilarious.

~~~
brown9-2
_Is there any struggling entrepreneur in the real world who would actually
turn down ANY offer from Mark Cuban?_

He comes off as a bit of a scumbag on the show - he frequently makes exploding
offers that will expire if the entrepreneur doesn't accept them within 30
seconds, or he'll state that he'll withdraw his offer completely if they even
talk to another one of the "sharks" about the possibility of another offer.

After watching the show I'd be very wary of working with someone who
negotiates with people like that unless there was a more equal footing.

~~~
dkrich
Mark Cuban is a clueless publicity whore. But he does have a lot of marketing
ability because of his fame. There is a pervasive misconception that if
somebody is wealthy, then whatever they say is right, regardless of their
domain expertise. You can tell by some of the questions he asks that he has no
clue what he is talking about. Put him in a room of PE analysts and he'd get
eaten alive.

But the reality is that most people who go on the show need sales, and having
Mark Cuban willing to advertise for you on Twitter and such is very valuable
for a growing business. His "expertise" is of little to no value. I certainly
agree with you there.

------
j45
I'm not sure what to call this: Dirty, greedy, unbelievable. Why doesn't the
news do the same for new products? :)

------
ChuckMcM
I've always wondered what the deal was for the 'chum'.

Sounds like 44% is the max you should ever offer, and even so I'd have my
attorney add a clause that said that if a shark invested ABC would have 60
days to either join the round or pass. Of course they probably would tell me
that I wasn't an acceptable candidate then :-).

Having dealt with many people starting companies over the years it is amazing
to me how often folks get hung up on things that are 'known' by folks who do
this a lot.

Perhaps there is an opportunity for MBAAcademy. :-)

~~~
dotBen
Well yeah, this is TV... the same way they filter out the smartest and the
dumbest candidate contestants for game shows and use the middle quotient.

You never/rarely see an entrepreneur enter 'the tank' who is Harvard MBA
trained and shit hot. They weed those guys out during the application phase.
_(not saying a Harvard MBA makes you a good entrepreneur however)_

------
damoncali
_The specific terms and conditions of the Option, royalty and warrants (e.g.,
exercise provisions, rights to documentation, shareholder rights such as pro-
rata rights and anti-dilution protections, etc.) shall be set forth in one or
more further agreements between Producer and me._

Seems a little wishy-washy, doesn't it? What happens if they can't agree, or
do they decide this up-front?

It also seems to imply that they want _preferred_ stock, which strikes me as
bit odd, to say the least.

~~~
seanmccann
There's a line up out the door with decent companies to take their place. It
creates a lot of pressure for the company to just sign it as soon as they can.

------
neilkelty
Am I the only one who would gladly give 5% equity or 2% royalty to appear on
shark tank for the promotional/sales opportunities generated from being on the
show?

~~~
dlitwak
5% for one promotional opportunity that has no guarantee of working out, that
you have no say about how you come off, isn't a good deal. There are other
smarter ways to get exposure. and after the hoopla dies down, you are left
with a large chunk of equity missing.

------
nwenzel
Interesting what they add in at the end: "The Shark Tank Entities or their
designee(s) will give good faith consideration to my expressed preference as
to the form of the Option (i.e., royalty or warrants)"

As if they'll agree to take the lower return option just because someone has
expressed their preference. Not sure if they're trying to be nice, or just
trying to make you think you have some choice in the matter.

------
dudurocha
The show already proved that even if you do not get a deal, you still get
benefits from the apresentation.

If we do a little bit of math, it's easy to see that it's not an outrageous
amount. How much does it costs 10 minutes in prime time? And even, probably,
you business is gonna grow even more than the 5% that they take out.

~~~
ricardobeat
They don't "take out" anything, they will own 5% of all that future growth
too.

Five percent of Facebook is (in theory) worth ~5 billion, while ABC itself is
worth around 3-4 billion. If Instagram had been on the show they would have
gotten $50 million a few weeks ago. For half a million dollars you can buy
your own 30s commercial, and that's a bad deal for nearly every startup in the
world.

------
azat_co
Well it's a Shark Tank, right? Most of the companies are jokes anyways. The
ones that are the hits are getting "free" publicity. ABC often revisit success
stories in their consecutive episodes. I love the show as it gives some
insights on how successful people invest: revenue, patents, dedication, etc.

------
moses1400
I noted this in my recap posts about 2 mos ago - the interesting thing is that
if you watch the earliest episodes, I don't think they put this in the credits
- but now they do. They don't say the percentages but they do say that ABC or
the producers may take an equity percentage in the company.

------
hyuuu
warning, slight plug but very relevant:

I am starting a project pitching platform,
<http://picocrew.com/presents/picocrew> one of the problems that I am facing
is to decide what kind of business model to take, and one of proposed business
models is to take 1-2% equity from the project. After a lot of going back and
forth with several people, there is one glaring flaw in the model. The success
rate of business is very low, especially from unproven teams.

The success of the proposed business is imperative and considering the
statistics, over 90% failure, this makes it a really unattractive proposal. I
realize Shark Tank offers 2 things: exposure and seed money, what I wonder is
the actual success rate of the projects that have been funded by them.

------
mbreese
Stupid question: I didn't see anything about dilution in the agreement. What's
to stop someone from diluting out ABC/production company after the option has
been exercised?

~~~
grabeh
In the UK at least (and I would imagine there are similar provisions under US
laws), the directors have obligations not to act prejudicially against the
interests of minority shareholders. Dilution being likely to be an example of
such prejudicial conduct.

~~~
mbreese
You're right that they couldn't just act prejudicially against minority
shareholders. But they could probably adopt a poison pill (of sorts) that
automatically triggered after the option was exercised? I know those exist.
But in that case, the producers would have to be aware of it, and in that
case, they'd opt for their 2% royalty option. But even in that case, you could
probably setup a shell company to route the proceeds away.

That all seems a little extreme though... but I'm surprised that the producers
agreement is so short and doesn't take this into account.

------
mikecane
And this is a series that was iffy about coming back for a second season. I
guess those equity clauses make it a better gamble for them.

------
VonGuard
2% royalty, even if you don't make a deal!?

Effectively, this makes it the new QVC model, because the exposure helps even
the non-deal companies.

------
JCordeiro
This is lame by ABC.

------
brianstorms
FYI, ABC = Disney.

------
thespin
Do you think Dragon's Den does this?

Imagine if every reality TV actor had to agree to give a portion of their
future earnings to the network, in the event they become very successful.

The question is, if you ask ABC to delete this provision, is it a deal-
breaker?

Some will just blindly agree to it, no doubt.

~~~
damoncali
There have been a handful of companies with real revenues on the show. I can't
imagine they would agree to such terms. It would be insane.

------
mkramlich
This story just adds another data point to my growing belief that I want to
minimize or ideally eliminate any further signing of contracts, forms,
applications or other legal paperwork. _"The big print giveth but the fine
print taketh away."_ Every document you sign has the potential to become a
minefield to be exploited by lawyers or unscrupulous types. Minimize your
exposure to that as much as possible.

~~~
eli
_shrug_

Contracts can protect you too, just don't sign anything you don't 100%
understand.

~~~
Drbble
That's exactly what parent said, from the other end of the tunnel.

