The Television Show “Shark Tank” has a team of millionaires offering venture capital to inventors and entrepreneurs alike. The millionaires include Barbara Corcoran, Kevin Harrington, Robert Herjavec, Daymond John, Kevin O’Leary. The contestants are inventors, some who have very cool products, but who are mostly ignorant about venture capital.
The name “Shark Tank” is apropos in that the cast offers “puny” amounts of money to the entrepreneurs in exchange for a large percentage of the entrepreneur’s business. The idea that the millionaires convey is that the entrepreneurs will become millionaires themselves if they take one of the highly aggressive deals offered to them. Of course the investors are bound to make a great deal of money also, or they would otherwise not offer funding.
The entrepreneurs asking for money need to seriously consider the next funding step in their businesses. Take for example Marian Cruz, inventor of the Turbo Baster. She accepted $35,000 from Kevin Harrington in exchange for a two percent royalty on all sales. The first question to ask is what can this amount of money accomplish? I would say that $35,000 would build a prototype baster, and allow the start of the manufacturing tooling to manufacture the baster. Of course, this is all in China, as costs in the U.S. would be far higher. So what happens when this money is quickly burned through? Marian will need more funding. She will approach Kevin for the money, and Kevin will state that he needs something in return. He will forward her some cash, and take an even larger stake in her company, leaving her with practically nothing.
Of course, Kevin may be willing to give this product to his existing manufacturing resources and cover the cost of development. He might also take the initial manufacturing costs out of Marian’s paltry two percent commission. None of these details are hammered out in the parts of the show that are shown on television.
Here is a more recent interview with Marian Cruz where she does give us more detail of the business deal.
[Check out this cool web site billed as "After Shark" with interviews with the entrepreneurs who appeared on the show.]
In this interview Marian states that she made a licensing deal and that Kevin is going to create the prototype. If it is a pure licensing deal, and all other costs are covered by Harrington, that answers more of the issues that I presented. Apparently there is a lot of the show that is not shown on television, and also they may do several takes for each entrepreneur. This format of only highlighting the major negotiations leaves me uncomfortable as I want to see and understand the entirety of these deals. That is television for you!
I am not so worried about the inventors being under capitalized seeing these after show interviews. It does sound like the millionaires are willing to see these projects completely through. Only time will tell as we continue to keep an eye on the show participants’ lives. I know that I want to see products such as the Turbo Baster making one billion dollars and offering these budding entrepreneurs massive amounts of cash. Now that would be cool.