I’ve been a big critic of Shark Tank — the venture capital (VC) “reality” show. It’s interesting that I seem to be one of the few people around who has a problem with the very idea of the show. Most of the “sharks” on the show are not what I would consider entrepreneurs. At best, most of them are deal makers. To me, an entrepreneur is someone who comes up with a new idea and brings it to market. It isn’t about money. I would call Richard Stallman an entrepreneur and never call Mitt Romney one. And most of the “sharks” are just people who used other people’s ideas to enrich themselves.
So I find it annoying to watch many actual entrepreneurs stand up, cap in hand, asking their rich “betters” for a little money to move their businesses forward. And I really don’t like the way that the “sharks” are presented as gods. Look at the way the set of the show is designed. Unlike other “reality” contest shows, the “sharks” (judges) are not seated behind a desk where they might, I don’t know, take notes. No, instead they sit in comfy chairs like they are the Council of Nine on Mount Olympus. Or, if you want to be a bit less fanciful: like a king listening to subject requests.
But I’ve also had a practical problem with the show: it is not how venture capitalists do their work. Most interactions with VCs are done on paper. It is far more about management teams than it is about what may or may not be the next big thing. You don’t get to talk to a VC until you’ve been checked out pretty thoroughly, because they don’t want their time wasted. But I heard something from Mark Cuban that made me feel that at least this aspect of the show is okay. When asked what happens after a deal is made on the show, Cuban said, “We get the opportunity to do due diligence. Sixty to seventy percent of my deals close.” (According to Inquisitr, Two-Thirds of Shark Tank Deals Never Close Off Air.)
Ah! So they do this work afterward, because it is a television show. That makes sense and it makes me feel that the show is much less of a fraud than I had thought. But this brings up something I discussed before, Herd Mentality on Shark Tank. One of the common things that happens on the show is that they argue about the valuation of the company that is being pitched. If the due diligence gets done after the deals are made, then the valuations that the “sharks” put forward with such assurance are indeed nothing but guesses — guesses that just so happen to benefit the sharks.
I found a very interesting article from a couple of years ago by George Deeb at Forbes, Comparing Shark Tank To Venture Capital Reality. He made some back-of-the-envelope calculations about how much money startups got and how much their valuations were. He compared those on Shark Tank with VC deals that did not take place on television. (Note: the data are not completely compatible, but it’s close enough.)
The average deal ends up with the “sharks” taking a 39% share of the company. But in the real (non-television) world, the number is only 15% (or 30% for preferred equity deals). So the show screws the actual entrepreneurs. A big part of this is that there is incredible pressure on them to make a decision now, now, now! As as I discussed in the article above, there is a lot of shaming that goes on, “How dare you question the combined wisdom of the sharks!” The implication is that if one of the sharks is willing to back a company, the entrepreneur should take it — no questions asked. In point of fact, actual VC negotiations go on for months and even years.
Shark Tank is still a vile show. It tells Americans exactly what they do not need to hear. It’s kind of the thinking person’s Lotto. It is more show than reality. But if you look at it the right way, it is a great illustration of what’s wrong with America. The “sharks” have no information about the companies before they start, yet they speak like they are experts. That’s what the rich in America are all about. They might as well be the kings of old. And this is not what I was raised to think that America was all about.