“…like you gave a little speed to a great white shark on shark week”
Macklemore & Ryan Lewis, “Can’t Hold Us“
People often ask me if I watch “Shark Tank,” what I think about the reality show, and whether or not it’s an accurate representation of venture capital.
To answer the first question, I’m a big fan of “Shark Tank.” The judges are always entertaining, and the pitches are interesting and different from the ones I see as a VC.
Does the show accurately represent the pitch scenes I see as a venture capitalist? Yes and no.
I’ll start with the differences:
- The speed of deals: unlike on “Shark Tank,” VCs don’t typically make investment decisions within minutes. The process is deliberate, more details are assessed and several in-person communications are exchanged between founders and VCs — all before a decision is made.
- Founder credentials and character: this one is related to the above point on the speed of deals. Because deals are rejected or negotiated within minutes on “Shark Tank,” the Sharks focus on the numbers, i.e., revenue, product, market opportunity. That’s probably the right focus given such a short timeframe. When I’m evaluating a pitch idea, I take the time to assess the character and credentials of the founders. Can they lead a team? Are they strategic thinkers? Are they trustworthy? What are past indicators of success? Obtaining these insights involves speaking and meeting with founders’ personal, business, and (if applicable) customer references.
- The deal terms: we’ve seen plenty of instances in which Sharks offer their commitment in exchange for upwards of 51% ownership or future revenue of the company. The show’s investors definitely live up to the stereotype of VCs as sharks capitalizing on founders’ vulnerable need for funding. But these types of lopsided deals rarely happen, if ever, in my world. Stripping founders of majority ownership is a recipe for disempowerment. My goal is to let founders do what they know best while providing funding and support to help them succeed. It’s true that the standard investment deal yields a higher return for investors in the event of an exit. But like any investment, there are no guarantees to a startup’s success. That’s why it’s a bigger monetary risk — and thus potential return — for VCs.
- The competition between VCs: there are plenty of tense moments when Sharks get feisty and competitive over a deal. Cuban even told Entertainment Weekly, “Trust me, there are times when you just want to reach over and punch Kevin or Lori.” In the real world, there’s far less drama, and the competition between VCs is more accurately characterized as cooperative competition, or “co-opetition.” While VCs may be in the same market to fund the most successful number startups, we often encounter opportunities in which collaboration — rather than competition — is more advantageous for driving value. Put simply, co-opetition allows VCs to share and syndicate deals to pool resources and risk.
- The entertainment level: I love the theatrics on “Shark Tank,” from the Sharks’ harsh rejections to the pitches involving singing, dancing, and props. All that makes for great TV, but not so much for real life. In my pitch meetings, conversations get animated or products are demoed, but not nearly as dramatically as on “Shark Tank.” Also, there’s really no benefit to harshly criticizing a pitch. I’ve been an entrepreneur on the other side of the funding conversation, and I know it requires bravery and vulnerability. If a pitch lacks the legs to convince me to invest, I prefer providing productive feedback that may help founders succeed in the future.
Now, onto the similarities between “Shark Tank” and real-life venture capital:
- The pitching fundamentals: the main components of “Shark Tank” pitches is similar to what I see in the VC world. On the show, contestants describe the market opportunity, the problem(s) solved by the product or service, and how the solution will be monetized to generate revenue. This is the general (and necessary) formula in the pitches I evaluate. Of course, these fundamentals alone aren’t sufficient to a successful pitch. Read my tips on nailing the pitch for more details.
- Upfront clarifications on investment goals and equity: prior to their pitches, “Shark Tank” participants always provide information on the amount of money they’re trying to raise and the percentage of equity they are willing to exchange for that investment. In the real world, this conversation also happens early in the pitch process. It’s important to disclose these expectations straightaway so founders and VCs can gauge whether the opportunity is even worth pursuing. Like on “Shark Tank,” I’ve seen plenty examples of founders drastically overpricing their company or setting irrational investment goals. That never bodes well for a VC, and may indicate poor judgement or lack of strategic vision.
- VCs add value beyond investments: the investors on “Shark Tank” were chosen for very obvious reasons — they’re not only successful investors in their own rights, they are also rich sources of expertise, connections, and opportunities. Shark Lori Greiner has leveraged her close connections with QVC to promote “Shark Tank” products on the popular home shopping network. Mark Cuban has reached an iconic level as a businessman, and his connections span far beyond his robust sports network — making him a very valuable source of opportunities for any founder. Similarly, as a VC, my monetary investments are only part of the value I provide to companies. I advise founders on market and product strategy, recruit key employees, make introductions to other VCs and influencers — all to help founders succeed.
“Shark Tank” makes for great television, and it provides enough similarities to real-world pitching to be instructional for entrepreneurs. But most of all, with 6,000,000 weekly viewers, the show is emblematic of America’s enthusiasm for entrepreneurial pursuits. “Shark Tank” is an important reminder and inspiration of the opportunities, risks, and rewards available to any entrepreneur with the vision, the will, and the right pitch.
P.S. China’s version of “Shark Tank,” called “Win in China,” attracts an even larger audience of 200,000,000 weekly viewers and features my IDG Ventures colleague Hugo Shong as a judge.
being a startup entrepreneur who has done a lot of pitches, I have the same views.
However I would add this about “VCs add value beyond investments”: the sharks are much better at it than any VC I’ve seen.
As an entrepreneur, I want to be pitched to; I want to choose my investment partner.
It seems many VC are waiting until THEY are interested to start thinking about what value they can add. They would add value by already thinking and stating who the best financing partners would be for us (them or “co-opetition”)
The numbers on my website have been rising since, I have started studying your work frequently. Thank you for sharing your knowledge and wisdom.
Great blog post! I’ve always wondered how close the show came to the reality of the VC world. The show really inspires people by letting them visualize success; very glad to hear it’s not all just for show!
Nice article, but I think you missed a few vital things about shark tank, I.e. The deals look like their done in minutes but their not, that’s just what you see on the TV, all deals are contigent on the sharks due dilegence. for accuracy you should have read the contract they have online to sign up. The competition now that’s part of the show, it sells. And on pitches I seen plenty of bad ones there that get funded, I guess it all comes down to the numbers I.e. No matter the pitch or the product / service, if I sold 1 million in six months I’m sure I will get your attention. Also most VC’s have their own mindset for doing business, like the popular. Fred Wilson. Maybe a little revision to this article might be due. either way i enjoyed it. Thanks
Reblogged this on ebukstel's Blog and commented:
Excellent insights on #SharkTank Tv vs VC
A year’s worth of education in one read. If only I’d happened upon you and this blog 7-8 years ago. Maybe, just maybe, it’s right on time.
Thanks for the insight!
Hi Phil – I agree with a lot of your points here / we have shark tank in the UK…..it’s called Dragons den……think shark tank may have come from dragons den originally. I love the program simply because it gives people a realistic dream to achieve rather than simply hitting the rat race – I agree it has its inadequecies however in comparison to other reality shows like X Factor (read American idol), strictly come dancing (read dancing with the Stars) and I’m a celebrity……the VC reality realm is doing far more good for the economy in my opinion. The reality of it is it’s there as an inspiration for others to ‘give it a go’ – let’s hope their negotiation skills are better then they are on TV haha – good blog by the way
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Hey Cousin Phil. Cousin Bernie/NY sent me your article on the TV show Shark Tank Vs real life. Very engaging.