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Harsh Realities of Shark Tank

Jul 11, 2024

Harsh Realities of Shark Tank

Overview

  • Shark Tank averages millions of viewers per episode on TV, Hulu, and YouTube.
  • Featured companies sometimes achieve massive success; others face dire consequences.
  • Harsh realities include deals falling through, altered terms, and potential bankruptcy.
  • Tens of thousands of companies apply yearly, but only a few receive exposure.
  • Not all exposure is beneficial; some companies find it detrimental.

Successes

  • Bombas
    • 2014: Damon John invested $200,000 for 17.5%.
    • 2023: Surpassed $1 billion in revenue.
    • Donated over 100 million essential items.
  • Scrub Daddy
    • Investment: Lori Greiner, $200,000, $1 million valuation.
    • Grown to $300 million valuation.
  • The Squatty Potty
    • Investment: Lori Greiner.
    • Acquired by private equity, sold over 8 million stools.

Deal Failures

  • Roughly 50% of deals fall through after filming.
  • Additional 15% close with different terms.
  • Only 35% close under original terms.
  • Decisions often affected by due diligence revealing issues.
  • Barbara Corcoran most likely to close deals (60%), followed by Damon John (56%) and Mark Cuban (54%).
  • Least likely: Kevin O'Leary (45.5%), Robert Herjavec (30%), Lori Greiner (29%).
  • Issues: Sharks changing terms, unresponsiveness, powerful clauses, etc.
  • Notable failures: Stricks (makeup) and Fried Green Tomatoes (food truck).

Application Process

  • ~40,000 companies apply annually.
  • 158 companies chosen to pitch per season.
  • Only 88 of 158 pitches air on TV.
  • Application process includes extensive screening, 17-page application, audition tapes, etc.
  • Odds: 0.4% to pitch, 0.2% to air on final edit.

Impact of Exposure

  • Positive: Incredible amount of free exposure, millions of viewers.
  • Negative: Potential for public embarrassment, business strain.
  • Examples: Negative reception for ESO and Pavlok companies.

Financial Clauses & Investor Terms

  • Before 2013: MGM and Sony required 5% equity or 2% of future sales.
  • Mark Cuban pressured them to stop in 2013.
  • Issues with redemption rights and control clauses added after deals.

Caution Among Sharks

  • High failure rate of startups (~90%) results in cautious investing.
  • Notable failures post-Shark Tank include Breathometer (app) and Toygaroo (toy rental).
  • FTC shutdowns and inability to meet demand are common issues.

Conclusion

  • Critical reflection on Shark Tank should consider both successes and failures.
  • The glamour of successful deals hides the challenging reality many companies face post-show.

Full transcript