
Mark Cuban makes Shark Tank remove equity clause in contract - ohashi
http://www.inc.com/will-yakowicz/mark-cuban-forces-shark-tank-to-remove-equity-clause.html
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marcamillion
I love this. Never knew this was a clause...glad he pushed for this.

Mark really does seem like a stand up guy.

Shark Tank sounds kinda 'fluffy' and I never paid it much attention for the
first few seasons - but then I heard about a company that pitched and I was
intrigued so I was searching through the episodes of one of the earlier
seasons and I realized how awesome the show is.

It is amazing to watch and see how quick the Sharks can sniff out vagaries of
a deal - e.g. if an entrepreneur raised money before at some crazy price, or
the cap table looks very weird, or the company was loaded up with debt. They
always seem to get to that pretty quickly.

I wonder if that is because they (the show) do due diligence on each company
before they reach the sharks and the sharks have notes about what to ask for.

Either way, I am always surprised by the quality of the pitches shown. Some
are lame, but some are surprisingly good with solid business and likely solid
growth prospects.

As a general rule, their instincts tend to be pretty spot-on - it seems.

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pzxc
I've read interviews before where it was indicated they know nothing (and want
to know nothing) until they walk through the doors to make their pitch. The
extensive due diligence is done after the show, which is why deals struck on
the show often fall through later on. For example, some of the companies that
pitch indicate that they have patents, but of course the validity and
defensibility of such patents is something that has to be researched, not
something you can take their word for. So on the show they're like, "Do you
have a patent?" and they reply, "Yes (or no)" and that's the end of that line
of questioning because it has to be researched independently.

The reason they seem to get to the crux of the issues so quickly, is because
like most reality shows, it is heavily edited. A five or ten minute segment on
the show reflects sometimes hours of questioning and discussion. From what I
understand they have VERY long days (much longer than 8 hours, more like 12-14
hours a day) so it's almost an endurance thing for the sharks, because they
spend so much time fleshing out the issues (and why wouldn't they since
they're investing real money).

Personally I love the show also. Also check out Dragon's Den, which has both a
Canadian and a British version (same format though, 5 investors all
competing), and more recently CNBC's show The Profit where Marcus Lemonis (who
was on the Secret Millionaire) by himself goes to failing businesses and
invests a hundred K or two and takes over management for a week to turn things
around.

I love this new era of entrepreneurship-themed TV, beats the hell out of
Survivor or Lost. =)

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marcamillion
Have always seen Dragon's Den but didn't pay it much attention for the same
reason. I may just revisit it now, based on your recommendation. Thanks :)

The patent move always had me scratching my head - how they could just take
their word for it and move on so quickly. Never understood it, but now it
makes sense.

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yogo
I'm sure there is always due diligence since the people pitching can always
lie about purchase orders and the like. Sometimes a shark will even explicitly
mention that the deal is contingent on something else coming through.

I've watched both and for some reason I find Shark Tank much better. I'm not
sure if it's production or just that spark for reality TV that seems to be
perfected in America. The personalities of the sharks probably has something
to do with it, or the mix since both Robert and Kevin are also on Dragon's
Den.

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kohanz
I've seen all three shows extensively and actually prefer the BBC show the
most. IMHO, the BBC one is the most serious version and even though you have
to get your head around some of the UK-specific stuff at first, you'll learn a
lot from the show. Canada's Dragons Den and, even worse, Shark Tank, are more
heavy on the drama and personalities, so there's more flash, but less
substance.

Also, Peter Jones on BBC Dragon's Den strikes me as an incredibly intelligent
investor.

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marcamillion
This is also interesting that he waited to push for this until now.

It just goes to show that no matter how rich you are, you have to understand
your value. If he had pushed for this change in Season 1 - which I suspect he
may have - he probably didn't get anywhere because the show could always
replace him.

Now that he has become synonymous with Shark Tank, he has much more leverage,
along with the fact that maybe this clause has increasingly become an issue
for companies.

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e40
Cuban wasn't on the show in season 1. He joined later.

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aarondf
Probably why he didn't push for it season 1 then!

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ck2
I know very little about him but this instantly makes me think he is a decent
person at heart.

(and retroactive too, nice detail)

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mdmarra
He is strongly opposed to high-frequency/algorithmic stock trading as well.
Plus, he is regularly the most-fined owner in the NBA for telling the
officials that they blew calls in press conferences.

At the very least, he's certainly entertaining.

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devx
And against patents:

[http://blogmaverick.com/2011/08/07/my-suggestion-on-
patent-l...](http://blogmaverick.com/2011/08/07/my-suggestion-on-patent-law/)

[http://techcrunch.com/2013/01/31/mark-cubans-awesome-
justifi...](http://techcrunch.com/2013/01/31/mark-cubans-awesome-
justification-for-endowing-a-chair-for-eliminating-stupid-patents/)

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ahc
While I love Mark Cuban, this move is clearly not just out of the "goodness of
his heart". He is a savvy investor. The production company (Finnmax) was
receiving the equity stake, not the sharks. He rightly felt that the clause
was limiting the quality of startups trying to get on the show. Now that he's
used his leverage to get rid of it, he will get better opportunities to invest
in.

He also gets the benefit of now seeming more entrepreneur friendly than the
other sharks, which increases he chance of participating in deals.

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JRobertson
He also doesn't have to share stake in a company with a detached investor who
literally got paid to get the equity.

If you think about it it's kind of insulting to his time where his only
payback for being on the show is payback from deals he makes.

Where as Finnmax gets paid to produce the show, then takes a cut of every
company, and likely does little to help the company advance. This would be
extra telling for multi-million dollar valuations where the sharks end up
getting single digit shares themselves and are expected to bring many contacts
and continue to work with and mentor the investors.

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001sky
_Savvy entrepreneurs aren 't willing to trade an automatic stake in their
company for appearing on a show without a deal_

~~~
porter
Kinda sounds like a jab at all the entrepreneurs that have appeared on the
show already in exchange for an automatic stake.

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netcan
A show like this really needs someone like Mark Cuban in a very strong
position as the equivalent of a creative director. The reality TV people could
be good at turning whatever goes on into a good episode (or using enough nasty
tricks to keep you watching for the next 5 minutes). To be a great show they
need great material. In this case, that means the best companies need to want
to pitch. The deals need to be envied by other investors. That's hard to
manufacture and it probably won't be achieved unless someone like Mark Cuban
is making it happen. A TV producer thinking from the perspective of shots &
scenes & backstory shouldn't be making any decisions about deal terms.

Exhibitionist fundraising might actually work if the deal terms were
acceptable and your intended market happened to watch Shark Tank. Imagine
square raised-launched on this kind of show.

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jedberg
That was always my biggest gripe with Shark Tank and the main reason I would
advise people to stay away. I'm glad they finally fixed that.

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joelrunyon
> Cuban said the clause was removed retroactively, meaning every contestant
> who's appeared on the show since Season One will be relieved of the
> commitment.

That's probably a huge sigh of relief for all past entrepreneurs.

~~~
giarc
I wonder if they will be paid back any funds that were paid to the production
company.

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crunkykd
Wow, he's the real deal looking out for the entrepreneurs. Kinda reflects
badly on the other sharks that they weren't agitating to end the Finnmax
abusive equity grab too. I concur that a better class of startups can now show
up, versus just desperate ones who would give away 5% of their company to
extortionists.

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aubreyjohnson
This is an awesome step in the right direction. Hoping to see some better
companies and more balanced deals.

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lesterbuck
Recently, the I Love Marketing podcast had an hour discussion with former-
Shark Kevin Harrington:

[http://ilovemarketing.com/episode-118-the-one-with-kevin-
har...](http://ilovemarketing.com/episode-118-the-one-with-kevin-harrington/)

Harrington details why he left the show, mainly because all the little deals
were sucking his time and it would be a full time, low return occupation
managing them. Apparently Barbara Corcoran now does nothing other than tend to
her Shark Tank flock.

~~~
mountaineer
I watch the show regularly and I've heard Cuban mentions this nearly every
time he says no. My time is what's valuable, etc. etc.

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eponymous
I always suspected that ABC (or whoever) got equity in the companies, because
they have (or used to have) a brief notice at the end of the show at the
bottom of the screen with suggests that. But surely this must have tainted the
whole process, because while an entrepreneur is considering a deal with the
sharks, they would also have to take into account the equity they give away by
just being a part of the show. I'm glad that's gone now.

It probably means though, that the entrepreneurs will be able to buy back the
equity, or buy their way out of the profit sharing agreement, more than likely
at the highest possible valuations. But at least there is a way out. And it's
good to know that future contestants won't have that to deal with.

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csense
I'm really glad I read this. I thought from the headline that it meant he
wanted the sharks to have more wiggle room to get out of deals made on the
show, or something similar that would make me think less of Cuban.

I couldn't have been more wrong. This is _great_ for entrepreneurs. Giving up
five percent just for the chance to make a deal is BS. Giving it up to a TV
production company is even more BS. I greatly admire and respect Cuban for
having the guts to stand up for these startups. (And it really does turn out
to be in his interest too -- smart founders _should_ balk at having to give up
five percent just to appear on the show!)

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nchuhoai
I know everyone here is cheering for that move and inherently it probably is
good. But what will inevitably happen is that we will see more people that
come on the show for solely/mainly publicity reasons. We already see that
happening right now occasionally when people ask for like 5% equity with clear
objective or not making a deal with the sharks

~~~
hayksaakian
Sure, but now that the show is well known, the producers probably have options
to pick from among candidates.

So its at their discretion to allow so called "publicity whores"

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loucal
I always wanted to pitch to shark tank and this equity clause was the only
good reason I could think of not to. Most of the entrepreneurs were probably
happy to give it up because of the exposure, but now it feels like trying to
pitch on tv is an even better idea.

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morgante
I still don't think many "savvy entrepreneurs" would/should turn to reality
television for VC, but glad this ridiculous term got removed.

Any other VC who demanded equity just for a meeting would've been laughed out
of town years ago.

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avalaunch
True but this isn't exactly a normal meeting. It's 10-15 minutes of television
coverage in front of ~6 million potential customers. Estimates have put the
value of that advertising at about 600k. 5% of one's company is actually a
pretty good deal for a lot of small B2C businesses when you look at it that
way. If you already have a product being sold and it would do well on a show
like QVC then the deal was pretty good. If, on the other hand, your company is
B2B, or too big, or the product isn't being sold yet, than it's a lot more
questionable.

I'm glad they made the change. We'll probably start seeing a more diverse
range of companies appear on the show.

~~~
kronholm
Just to add to your post, I don't remember ever seeing anyone getting a deal
at 5%. It's usually more around the 20-30% range, and sometimes with equity
stakes on top of that.

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jaredsohn
The GP is referring to the equity given up just for being on the show (not the
equity given up if a deal is made.)

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xpop2027
This was the reason we didn't try to get on Shark Tank, maybe well apply now
:)

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ryanburk
mark cuban, obviously not a traditional VC. and that is a good thing.

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nsxwolf
Bravo.

