Lessons Learned from Shark Tank

I enjoy watching Shark Tank. It pains me to watch some of the more ridiculous businesses. But they also showcase some really interesting businesses, so it can be very entertaining.

My favorite reason to watch the show is to see investors in action. It is really one of the only venues where you can watch real investors:

Rip down an idea and cut to the chase
Ask important questions
Try to take the entrepreneur’s “ask” amount and twist it to something more in their favor; the worst deals stick the entrepreneurs with perpetual royalties to pay the investors
Negotiate; you quickly realize that investor’s offers are not set in stone (neither are entrepreneur’s offers), especially when other investors try to get in on the deal
Compete against other investors
Collude with other investors
Be influenced not only by the opportunity at hand, but also by the entrepreneur’s ability to negotiate well (firm, but not cocky is a winning strategy)
Offer more help than just their own money

Of course, this is not completely replicative of the process that occurs in VC firms. VC firms are not all in the same room at the same time watching each other negotiate a deal. VC deals do not happen all at once verbally. Also, real VCs don’t have the added motivation of wanting/needing to do a deal because it’s on national TV.

The most salient lesson learned from the show is that the biggest influencer of the overall deal price is the initial anchor price set by the entrepreneur. If it is too low, the entrepreneur will rarely by able to get it to go higher (only happens when investors start bidding off each other). If it is too high, most of the time the investors will still make an offer if they like it anyway; they’ll just bring down the valuation in their counter offer. The investors never outright reject a deal merely because the initial anchor valuation is too high.

On April 14th, Shark Tank will be holding auditions at the Fox Theater in Atlanta. They have openings for 500 companies to pitch. Pitchers are 1-minute only, but you have to fill out a fairly extensive application online first. Details are here. Thanks to Rob (whose company Badgy is funded by Mark Cuban, one of the Sharks) for letting us all know about these auditions.

I’d love to see a bunch of Atlanta startups get included in Shark Tank. To get on the show, you have to be interesting to a general audience. I said last night that I think Spensa Technologies would be a great fit because I think their technology is real, yet their story is interesting to everyone.

Do you watch Shark Tank? What do you like about the show?

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