A version of this article previously appeared in The Wall Street Journal.
The reality television show Shark Tank makes for entertaining content but many of its underlying messages are potentially detrimental to tech entrepreneurs. Thus, emerging entrepreneurs should parse fact from fantasy by watching the show with an experienced business pro.
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Relax. I get that Shark Tank is a TV show focused on entertaining its viewers. Having appeared in a reality series, I am well aware of the lack of reality involved in this entertainment genre. Our dialog was scripted, reaction shots were routinely taken out of context and faux conflict was relentlessly encouraged among the cast.
As noted in What’s Real About Shark Tank, the show can give consumer product companies a significant marketing and revenue boost, as it did for one of my former students, Jeff Overall, Founder of PolarPro. It is also an inspirational alter call to entrepreneurship.
Per the show’s Mark Cuban, “Anybody with an idea can see how the business process works, see that these are normal people, and there's nothing magical about coming up with an idea.” I completely agree regarding the lack of “idea magic”, however the show’s time constraints and focus on drama provide viewers with a highly distorted portrayal of “how the business process works.”
I have seen the effects of this distortion first hand. A number of my UC Santa Barbara entrepreneurial students initially model their investment pitches on the show's contrived format. Experienced entrepreneurs have no issues parsing where reality stops and entertainment begins. However, such distinctions are less clear to young entrepreneurs.
I am not alone in my opinion that Shark Tank is not representative of real-world tech investing. According to David S. Rose, author of the New York Times best-selling textbook on the subject, Angel Investing: The Gust Guide to Making Money & Having Fun Investing in Startups:
“I love watching the show, but Shark Tank has about as much to do with angel investing as Indiana Jones has to do with archeology. While the show makes for great drama, it has absolutely nothing to do with reality, nothing to do with angel investing, and very little to do with entrepreneurship. If anything, some of the most valuable lessons one can learn from watching the show are what not to do—both as an investor and as an entrepreneur. The best TV moments come from Mark Cuban and Kevin O’Leary, but they are also the least realistic. I strongly advise aspiring entrepreneurs against trying to learn anything from the show, but instead sit back and watch it for what it is: neat entertainment."
I admittedly am not addicted to the show and thus I don’t have the depth of knowledge of a rabid fan. However, assuming the shows I watched were largely devoid of lessons for real-world entrepreneurs, especially those running tech ventures.
Shark Tank Distortions
Partners, Not Sharks - The show's title communicates a predatory message. Accomplished investors are not seeking to gain an advantage at the entrepreneur's expense. On the contrary, successful investors are typically entrepreneur-friendly, and treat their entrepreneurs as partners, not adversaries
Pitch Overvalued - Pitches are important, but they are not the focal point of fundraising in real life. Understanding the entrepreneur's motivations, aptitude and attitude are more important than a slick pitch. In the real world, pitches are an important step in establishing a relationship with an investor, not the finale which triggers an investment.
Compressed Timeline - I realize that for purposes of the show's formula, funding decisions must occur immediately after the pitches. However, in real life, investor relationships are typically fostered over weeks, months and in some cases, years, not a few minutes.
Note that the judges' "commitments" are "pending diligence" and thus, they are merely signs of interest to learn more, not commitments, as implied on the show. In addition, actual pitches are much longer than the edited versions that are aired. Per Jeff Overall, “The QA portion is actually very thorough and I imagine these would be the same questions asked in a traditional fundraising setting. They usually only air the entertaining questions, a lot of the dry questions the sharks (use to) make their decisions on are not aired.”
The show would be more educational (and realistic) if it allowed viewers who are looking to be educated and entertained to watch/listen to entire pitches online or via podcasts.
Ideas Overvalued - The show's pitch-centric format places too much emphasis on the appeal of ideas, rather than the entrepreneur's (and his or her team's) ability to create value via effective execution.
In reality, ideas are worthless. Thus the show's emphases of the novelty or cleverness of a particular idea could cause unseasoned entrepreneurs to attempt to raise money too early. In the real world, entrepreneurs should seek capital from sophisticated investors after they have proven their underlying value proposition. Such proof usually comes in the form of strategic partners and paying customers, as described more fully in What The Heck Does Traction Really Mean To A VC?
Lack Of Domain Expertise - Ideal investors are experts in your market and can provide relevant, tactical assistance. The Shark Tank panel often has little industry expertise in the deals they are pitched.
Paltry Valuations - The amounts invested are not representative of the bite sizes generally taken by sophisticated tech investors. Most legitimate Seed Rounds provide entrepreneurs with enough funds to generate meaningful value in advance of a future funding round and seldom result in the entrepreneur giving up more than 20% of their ownership.
Consumer Centric - The show understandably focuses on consumer products that its viewers can relate to. However, in reality, very little venture capital is applied to such startups. Consumer goods are best funded in a crowdsourced manner, through industry partnerships or via conventional loans, which can be secured by the underlying inventory.
If you have a consumer-oriented product, Shark Tank can act as a component of an effective PR campaign, driving by buyers to your site. For instance, startup Plated captured 45,000 email addresses in 120-seconds after appearing on the show. Unfortunately, the company’s ability to directly sell product was limited, as the deluge of traffic made their commerce funnel inoperable.
Thus, companies with physical goods (like Plated and PolarPro) should consider Shark Tank as an option - not to secure money from one of the celebrity panelists, but to jumpstart their sales and gain enough momentum to attract a bona fide investor.
Not So Free Publicity - Although public exposure might be a legitimate motivation for appearing on the show, the resulting notoriety can come at a cost. Publicity cuts both ways. If your product is poorly received by the judges, it could be a major setback, making it more difficult to raise legitimate funding in the future.
Nothing Is Real And Nothing To Get Hung About
If you watch Shark Tank as entertainment and not to obtain a startup education, you will be benignly inspired by fellow entrepreneurs. However, if you attempt to apply this television fantasy as a template for your fundraising efforts, you will learn first-hand what the Producer of the reality show I worked on once told me.
In the scene we were shooting, I was walking from a lake holding fish that I had supposedly caught (in reality, it had been purchased at Whole Foods). The script required me to tell our cook that he needed to incorporate the fish into his meticulously planned meal. The intent was to cause dramatic conflict, as the chef had to completely re-think the meal.
Reality TV, including Shark Tank, involves a heavy dose of contrived controversy. While handing me the store-bought fish, the Producer laughed and said, “There is very little that is real about reality TV.” One might paraphrase this to say that, compared to raising money in the tech world, “There is very little that is real about Shark Tank.” Thus, watching the show with a Mentor who has already gone down the investment road will allow you to enjoy the entertainment and drama, without buying into the bullshit.
Follow my startup-oriented Twitter feed here: @johngreathouse. I'll never tweet about swimming with sharks or that killer burrito I am about to devour - just startup stuff. You can also check out my hands-on startup advice blog HERE.
Image: PHILIPPE LOPEZ/AFP/Getty Images