How Does Shark Tank Work?

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The show Shark Tank originally premiered in 2009 and it has since grown into a massively popular reality TV program that has spawned spin-offs and international versions. But how does this business-oriented show work? Unsurprisingly, there is a lot more nuance to the show than what viewers end up seeing on TV.

 

The Basic Premise of Shark Tank

The premise of Shark Tank is very straightforward. Entrepreneurs looking to boost their business come to the show to pitch to the Sharks – a panel of investors comprised of highly successful business moguls.

 

Over the course of an entrepreneur’s presentation, the Sharks can ask questions about their product, service, or company. The Sharks can continuously poke and prod until they get a good handle on what the entrepreneur is offering.

 

If an investor likes what they see, they can negotiate with the entrepreneur and come to a handshake agreement. The Sharks can pour their own money into the businesses they like. In some cases, multiple Sharks may be interested and that may cause a bidding war to ensue.

 

Unfortunately, some of the entrepreneurs who appear on the show may go home without making any deals. They will have to go about securing funding for their business venture in a different way.

 

How Do Entrepreneurs Get on Shark Tank?

Let’s say you’re interested in trying your luck with the Sharks. How do you even get started on that journey?

 

The show offers interested entrepreneurs two ways to get on the show. They can either apply online or attend an open call. Regardless of which path you ultimately choose, you must first meet certain requirements.

 

Requirements for Shark Tank Applicants

A Shark Tank applicant must either be a U.S. citizen or a legal resident of the country. No one in their immediate family or household must also have a connection to any Shark Tank employee or an employee of one of the Sharks’ companies.

 

Convicted felons and those who have pending criminal charges are also not allowed on the show. You must also refrain from running for public office within a year after the season you appeared in airs.

 

If you meet all those eligibility requirements, you will be able to apply. You will make your initial presentation and the way you do that will depend on how you applied. After that, comes what is arguably the hardest part.

 

What Happens after the Initial Presentation?

You will have to wait for the producers to get back to you to learn about the results of your initial pitch. It may take months for the producers to reach out because they will thoroughly scrutinize you and your business before they make a decision.

 

When the producers do reach out, they may ask you to send additional documents or even an audition video if you’ve made it far into the process. They may also conduct an interview over the phone.

 

If you’ve stuck with it, you could be among the few applicants who make it to the Sharks. Just remember that there’s still no guarantee that you’ll be on TV if you pitch it to the Sharks because the producers can still make cuts at that point.

 

The Factors the Sharks Consider before Investing

The Sharks got to where they are by making shrewd business decisions. They will draw from their wisdom and experience to decide whether a particular business is worth their money. They will also ask the entrepreneurs about important matters such as:

  • Manufacturing Costs
  • Marketing Costs
  • Previous Sales
  • Future Sales Projections
  • Selling Price
  • Potential Rival Companies

 

The Sharks will consider all the facts about the entrepreneur’s business and calculate its potential profitability. Remember that they care most about a company’s future prospects. A company’s earlier success is an important data point, but it’s not the thing that matters most to them.

 

In addition to the factors mentioned above, there are other things that the Sharks will consider before they make a final decision on an entrepreneur’s pitch. Those additional considerations are often intangible.

 

A particular investor may be moved by an entrepreneur’s pitch. Even if they can see that the venture is risky, they may agree to fund it anyway because of their belief in the company owner’s determination.

 

Entrepreneurs need to keep in mind that they are selling both their company and themselves during their presentation. It’s important to tell a compelling story if they want to get an investor onboard.

 

Valuing Your Company

How much you value your company will greatly influence your chances of receiving funding. In exchange for a Shark’s money and other essential resources, you will have to sell them a share of your company. The amount of equity you’re willing to give up and the price you’re selling it at will determine if one of the Sharks bites.

 

Negotiations will likely take place at that point. It’s up to you to decide how flexible you want to be with your demands, but remember too that the Shark investing in your company is taking a risk. You must at least be open to the possibility of giving up significant equity if you’re after substantial funding as well.

 

Once you and the Shark come to an agreement, the two of you can seal the deal with a handshake. Of course, things aren’t always that simple.

 

The Aftermath of a Shark Tank Appearance

Entrepreneurs may have different experiences following their appearance on Shark Tank. Those who fail to land a deal often still benefit from their appearance because their business receives significantly more exposure.

 

Even if you did snag a deal, that doesn’t necessarily mean that the Shark will hand you a check right after your pitch. They will first conduct a thorough examination of your business to determine if everything is as you said.

 

If they like what they see, they may give you the funding you’re seeking. If your business looks less appealing to them after their examination, they may rescind their offer.

 

The entrepreneurs also have the option of declining the funding from the Shark. You may not like their offer and decide that you want to try your luck securing more funding from other sources now that your business is better known. That’s a tactic that many entrepreneurs have used to great success.

 

Conclusion

Shark Tank is a great source of entertainment for many of us, but it is serious business for the people involved. Entrepreneurs can benefit greatly from being on the show, but their path to success is not always linear.