Alright, I am not really here, but every year 40K companies and 40K founders go through
an amount of work and effort to try to get a spot in front of these guys.
It’s a nasty application process, paperwork, interviews, and auditions, all to step onto the
stage for just ten minutes and get shit from these guys. But it pays. It pays MILLIONS.
207 million dollars have been raised by Shark Tank companies so far.
But it’s easy to tell a success story out of these massive success cases.
I’ve been wondering if these guys are actually good at investing.
I’ve been wondering if their ROI is there! How many of the companies they bash
go on to prove them wrong- and if their Shark instinct is correct.
So we did it. We’ve spent weeks looking at the cold hard data of
thousands of companies that have gone through 295 episodes of Shark Tank.
We analyzed everything from their products,
to how much money they asked for, to valuations and of course outcomes.
We found some shady stuff- like producers trying to get equity just for appearing on the show. We
found that half of the deals that were broadcast, that you see on your screen- don’t actually close.
So this is Company Forensics, the real numbers behind Shark Tank.
These 40,000 companies apply every year to be in Shark Tank.
They do so by either filling out an online application form or waiting in line for
long hours for a live audition.
And we’ll lose most along the way.
Maybe their business isn’t consolidated enough.
Or they’re bad at pitching (cuz they haven’t watched our videos).
Or their product is useless.
Or they are just boring.
More often than not, making it to the show is not so much
about the product, is about the personality. It’s all about the ratings!
But after this massive purge, we’ll land on a group of a few hundred companies.
Those that do make it, will need to fill this. 17-page application kit.
They’ll spend months on audition tapes, answering emails from production,
and having endless video calls. And we’ll end up with just 158.
158.
This batch will get to pitch the sharks,
and all you have to pitch them is 10, carefully timed minutes to pitch your company.
But it’s not over. You won’t see all of them. If your pitch
and your discussion are boring, they just won’t make it to TV.
Out of those, about 52 will get a Yes- but not all of them will get the money.
We’ll get to that later.
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Ok so obviously, what you see on TV is not what actually happened.
The whole session takes about 45 minutes, sometimes going into one or two hours. And
this of course gets shortened, cuz who watches 2 hours of anything these days.
Why would anyone go through this? It sucks.
It sucks so much, that founders that pitch to the Sharks actually have
a one-on-one session with a licensed psychologist to deal with the experience.
#avoiding lawsuits.
But just being on TV is part of the reason why companies do it.
In this case, the sharks were wrong. This company knocked it out of the park.
Millions in sales. Enough to make the Sharks regret it.
And it’s not the only case. Take Lena and Steve, for example.
Steve Shashen and Lena Phoenix manufactured a modern take on the traditional Huarache shoe,
and they called it the XeroShoe, and the stakes were high on this one.
So, does this mean you don’t need the sharks? Do they bring the value, or is it the Air time?
PART 3
After all, it’s not as if they don’t make mistakes, 57 shark-backed
companies have gone out of business.
Some of them are quite spectacularly so, like the Breat hometer.
I mean it was a good idea,
this device that measured the alcohol level in seconds, so you don’t drink and drive.
They agreed on a $1M check for 30% equity.
But then this happened.
The FTC forced the company to refund all of their customers, because of accuracy problems.
And the Sharks were obviously embarrassed.
So back to this question, what is the real value
of the Sharks themselves? I want to go back to Lena and Steve’s story.
That episode aired on February 1, 2013. It was the 14th episode of the 4th season.
The show was already established, and 6.73 million people watched it,
and they loved every minute of it. O’Learys’ heartbreak, the product, the founders: everything!
The script says Mr. Wonderful but I’m not calling him that.
In the weeks after the episode aired, the company boomed. Xeroshoes sold 20%
of the previous year's volume in seven days! The website even crashed. With the air time alone,
they had made more than they had asked for in Shark Tank.
XeroShoes only kept growing. The company grew 88%
during the pandemic and even landed a deal with another investor. By 2021,
the product was sponsoring Olympic athletes and raking $13 million in annual revenue.
All without the help from the Sharks.
And that’s just one in many stories.
Justin Wang is the founded this company. Where is it? Ah. this.
His valuation made Larq the most valuable company in Shark Tanks history!
After all, years later, Larq did reach those $50 million.
But not with the Sharks.
That deal didn't close, but appearing on TV was enough of a catalyst to reach those $50 million.
It happened to Larq, and to XeroShoes, and many others.
There's even a term for that- and the production company knew it very well.
As an entrepreneur, your appearing on TV means
millions of viewers. It’s even better than having a Youtube channel. The Shark Tank effect.
On the other side of the screen, there could be investors, entrepreneurs,
or plain old consumers who love your product.
After going through all this grueling process,
if your company made it to the season, you had to pay.
Regardless of whether or not you raised money, they expected companies to pay
a 5% equity- for a few minutes of fame.
For comparison, there have been 18 deals in Shark Tank with that much equity! It’s no small amount.
Again, even if the Sharks rejected your idea, you had already lost 5% of your company.
Oh but wait, there’s an alternative. If you didn’t want to give 5%
If, by chance, you didn’t want to sacrifice 5% equity, no problem!
Alternative: you can pay them a 2% royalty on future sales in perpetuity.
But these absurdly high commissions aren’t the worst of all.
Oh, no. You had to pay this regardless of whether your pitch made it on TV or not.
There are a fair share of companies that took this deal, and still have to pay that royalty.
But of course there was a downside. Better prepared companies
weren’t willing to sacrifice so much equity.
Finally, in 2013, Mark Cuban said screw this,
and demanded that the production company stop charging that.
His rant proved correct, just take a look at how the viewership and deal amount changed
in the following two seasons.
but this is the first of many Sharks that we prepare today, so I'm going to move to old but familiar part of out story.
But, in all of this, where do the Sharks come in?
It’s surely not just about changing the rules or making it on TV.
After all, these are millionaires (even billionaires).
So, if they get their hands on your product, they can make millions for
you, but what does it take to draw their attention?
First, it might be the category.
In 13 seasons, 1187 companies have been on Shark Tank and appeared on TV. In that time,
there have been a total of $207 million in deals from the Sharks.
Food and beverage products reign supreme.
Second place goes to health-related products and fashion are third.
Then, it also helps to know how much money you should ask for.
Here’s the average deal handed out in the 13 seasons of shark tank.
Here’s the lowest. (10k) Zoom in
And here’s the highest ever. ´(5M) Paneo
Ask any more than that, and they laugh you off the stage.
Then, there’s the equity, and how much you should be willing to give up.
That’s a lot and when you give so much, you expect a good payout.
So, you could say that this is the perfect Shark Tank deal and with it, the Sharks could say yes.
But, even so, this show continues to impress me because a yes from the
Sharks often mean anything!
So, let’s go back to the 52 that supposedly landed
a deal. That means that at least one shark will say yes.
It’s not over.
52 got a yes, but this is how many deals ACTUALLY become a reality.
On average, only 27 companies close out the deal per season, and it's all due to paperwork.
There's this very boring thing called due diligence. After the handshakes, drama,
and complex negotiations, the Sharks and founders must analyze the company’s
paperwork. This sis called a data room and next weeks video is all about what to include in one.
It's looking at the data room that things don’t quite work.
Usually, it's the founders. 90% of the deals fell through because the
founders believed the conditions weren't good for their business.
Then, some deals have taken so long to negotiate that the episode has already aired.
Thus, the company benefits from the shark tank effect, and they
kiss the Shark goodbye and carry on with their lives.
Here they are. 27 companies per season. So, landing a deal should be lifechanging,
thing, right, not then why are the sharks even here
Well, let's not forget about one thing. These aren't ordinary
businesspeople.
There have been a total of 32 sharks that have appeared at least once, even him.
That has to suck. Being recognized as the most boring Shark ever. That's how unengaging
Kevin Harrington was. So much so that Mark Cuban gradually replaced him in season 2.
But enough about Harrington.
The core six, and the other guest Sharks,
have one thing in common. It's the one reason why the show works.
They all know how to make money.
That's the allure.
People want their money. Hell, people want to be like the Sharks.
So, despite the journey, the hardship, and knowing that the deal might fall, there's still
that sliver of hope that shark tank is a good thing for your business.
And as much as I wanted to provr them wrong today, I couldn’t. Let’s analyze
all the companies that have gotten a yes on air and then failed to close the deal.
They are 349 and here’s how many still exist.
Those that close the deal are even more interesting.
So, having the sharks on your side is a good thing, after all.
Here’s how many of each of the Shark’s investment on Shark Tank still exists.
But, it's when we compare it to other sectors that I'm most impressed.
Let’s talk about startups.
We know that around 80% of startups will fail within five years.
Let's leave the startup world and talk about business in general.
Let’s add this statistic. Here, you'll see that 50% of companies fail within five years.
I know, I know. It's not encouraging, but hey, that's business.
So, how does Shark Tank fair?
That’s astounding. But, let’s go even a bit further.
Even those companies that didn’t close the deal do great!
Let that sink in for a moment.
This show has a better success rate than most industry standards.
Turns out I was wrong all along.
The drama, the brutal admission process, and Mr. Wonderful, they're all worth it.
This is why Shark Tank exists, and that's why those 40,000 companies are willing to face
an admittance rate of 0.4% and a 0.2% chance of making it on air.
All that, to hear the Sharks say I'm In.