I am often asked for my comments on the program, Shark Tank. These queries are so frequent, in fact, that I have dedicated time this month to blog about this broadcasting phenomenon. This is the second of those blogs: Sharks Feast on Public Relations.
The two articles below are excellent summaries of what really happens on the show, before editing and after filming. One, from Forbes.com, details how only 27% of the deals “closed” onscreen were actually funded as described. The other, from Quartz Media LLC, makes some telling observations about how Shark Tank actually operates. Both articles leave one with the same takeaway: The show is not about funding entrepreneurs; it’s all about marketing. The assumption is that, while many of the deals fail to close, or close on less favorable terms, the companies still benefit from the publicity.
Does publicity really pay the bills?
While many of the Shark Tank entrepreneurs are thankful for the attention the show generated for their businesses, it takes money to capitalize on that PR. Whether funding is needed for working capital, or for sales and marketing expenditures, the money provided by the Shark Tank investors is a relative drop in the bucket. The show’s median investment is around $250,000, and yields the sharks a 20% shareholding. Is $250,000 enough to allow the average company to reach a significant milestone (and raise more money at a better valuation)? Probably not. Will it be able to get a line of credit from a bank to fill in any funding gaps? Also unlikely.
So, how do entrepreneurs take advantage of their new notoriety?
My guess is that many raise additional equity capital. A fundraising round targeting less than $1 million is often dismissed by investors as not worth their effort. So, if an entrepreneur were to seek $1 million at the show’s valuation he/she would give away 50% of the business. That might not be so bad, but many of the entrepreneurs get to the TV stage having already given away significant ownership interests to earlier investors. Ouch.
Nobody said that starting a business would be easy. Owning a much smaller portion of a much bigger pie is the fundamental bargain that entrepreneurs must make. I understand that. I also understand that publicity is an intangible. The value of national TV exposure does not offset or justify a low valuation. Unfortunately, that’s part of the Shark Tank bargain.
So, while reality TV may bear little semblence to reality, sharks, it seems, will be sharks.
When it comes to big deals, not all is as seen on TV.
Quartz got a behind-the-scenes look at a casting call, which dispelled some myths about the hit show, and offered lessons for entrepreneurs in America today.