
A Silicon Valley Take on ABC’s Shark Tank - klsvu
http://lsvp.com/a-silicon-valley-take-on-abcs-shark-tank/
======
larrys
"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.

~~~
gojomo
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:

<http://news.ycombinator.com/item?id=3946008>

~~~
larrys
"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).

------
ChuckMcM
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.

------
dmk23
I think this is really the money quote -

    
    
      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.

------
coryl
Love the show, great insight from a VC perspective as well.

You may be able to watch the episode here: <http://abc.go.com/shows/shark-
tank>

~~~
jwarzech
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.

~~~
brown9-2
For any other American viewers: Dragons' Den is the original and Shark Tank is
the adaptation.

Impressive to see how many countries the show has been brought to:
<http://en.wikipedia.org/wiki/Dragons_Den> (Afghanistan!)

------
dm8
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?

~~~
ChuckMcM
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.

[1] <http://www.copadivino.com/>

[2] [http://www.aoltv.com/2011/03/21/shark-tank-inventor-wine-
by-...](http://www.aoltv.com/2011/03/21/shark-tank-inventor-wine-by-the-glass-
turns-down-deal-video/) __WARNING HUFFPO Category 5 MONETIZATION __

~~~
majani
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.

~~~
ChuckMcM
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.

------
eb007
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

------
sown
Are VCs that harsh in reality?

