As a person who loves business and investing the hit TV show Shark Tank is like a dream come true. What makes the show so great is that it is remarkably educational and entertaining as well. The show gives business owners or entrepreneurs an inside look at what investors are really looking for when it comes to making investment decisions.
As a huge fan of the show I like to research and find out about some of the companies that were featured. While I was researching some of the companies that were featured I found out that there is a lot of things going on behind the scenes. It basically reinforced the idea that everything is not as it appears. While most of the things that I found out are not earth shattering revelations, they just forced me to look at the show in a different light.
Here are 5 things that I found out about Shark Tank that you are probably not aware of:
- The producers of the show receive royalties or an equity stake in companies featured on the show.
- Each year thousands of entrepreneurs apply for a chance to be on the show.
- The investors, otherwise known as "The Sharks", have no idea about the businesses until they are pitched.
- The pitches that you see on the show are actually edited down to under 15 minutes.
- A lot of deals that are agreed to on the show are never actually funded.
The Producers Of Shark Tank Receive A Royalty Or Equity In Companies Featured On The Show
After reading an article about a guy who was featured on the show I found out that Shark Tank receives either a 2% royalty or 5% equity in your company. This only applies if the company is featured on the show.
Now while some may consider this unfair to the entrepreneur presenting, you have to consider that their business is getting a huge amount of exposure which may translate into a huge amount sales.
Another thing that happens quite often is viewers will accuse entrepreneurs of not trying to secure a deal and that their sole purpose of appearing on the show is to get FREE publicity. Obviously, since they have to give up a royalty or equity for appearing on the show this is not free publicity.
Thousands Of Entrepreneurs Apply For A Chance To Feature Their Business On Shark Tank
Over 36,000 entrepreneurs applied to present their businesses on Shark Tank in the 2012. Why is this significant? Well on average there are between 4 to 5 businesses presented on each episode and there are about 10 - 15 episodes per season. So basically out of 36,000 entrepreneurs between 50 to 70 will actually appear on the show. So it is not easy for a business to be featured on the show.
The Sharks Have No Idea About The Businesses Until They Are Pitched
According to an interview with Tiffany Krumins, the creator of Ava The Elephant and past Shark Tank TV show participant, the investors do that know anything about the ideas or businesses that pitched beforehand. She mentions that it is similar to an angel investors meeting where entrepreneurs present their businesses in several rounds.
I guess the producers of the show believe that it makes for better TV if the investors do not know about the businesses beforehand.
The Pitches That You See On The Show Are Actually Edited Down To Under 15 Minutes
The business presentations that you see featured on the Shark Tank are actually way longer than the 10 to 15 minutes that you see. TIffany Krumins, a past Shark Tank participant, mentioned that her presentation including questions and answers from the Sharks lasted about 30 minutes.
Another Shark Tank participant Scott Jordan, who created Technology Enable Clothing, mentioned that his session lasted for over an hour. He actually did a full play by play of his experience on Shark Tank. He mentions that the portions of his 1 hour presentation that were featured on the show made him come across as cocky and arrogant. He contends that for the most part he was calm and respectful to all of the investors but became defensive when they attacked his business.
In spite of all of that, Scott understands that the goal of the producers of the show is to make it more entertaining. Essentially, the producers primary objective is to make good TV versus presenting the entrepreneurs in a good light.
In the video below Scott explains what is happening through his particular segment on Shark Tank.
A Lot Of The Deals That Are Agreed To On The Show Are Never Funded
Believe or not, a lot of the deals that you see agreed upon on the show fall through. Basically the deals that you see on the show are simply a good faith agreement to make an investment in you. This makes good sense because before any smart investor makes an actual investment in any business they must do their due diligence.
What is due diligence in terms of making investments?
It basically the process in which investors make sure that everything that is presented to them is real. The investors will verify sales and profits through bank statements or other documentation. The process may also include background checks on the principals involved in the business.
The due diligence phase is where most investments fall apart. Megan Cummins had a deal with investor Robert Herjavec, but once the due diligence process began Robert had changed the original agreement and eventually backed out of the deal altogether.
According to one article by the New York Post, Kevin O'Leary, an investor on the Shark Tank, contends that he will only finalize 3 or 4 of the more than 12 deals that he agrees to on the show.
More On The Shark Tank TV Show
Here are some other articles that you may like about the Shark Tank.