SanFranciscoVC

“…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.