Every year over 40,000 companies go through months of effort trying to get a coveted spot on one of the world’s most popular shows: Shark Tank.
It is a nasty application process that involves paperwork, interviews, and auditions, all to get in front of the sharks and pitch (and most likely get torn to shreds). But it pays - it pays MILLIONS. 207 million dollars have been invested through the show to date.
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: is the ROI there? How many companies do they bash that go on to prove them wrong? Is the Shark’s instinct 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 broadcasted on the show never actually close, and we wanted to share that with the world.
So these are the real numbers behind Shark Tank.
So as I said, roughly 40,000 companies apply each year to be on Shark Tank. They do so by either filing out an online application form or waiting long hours for a live audition, but most will be lost along the way. Maybe their business isn’t consolidated enough, or they’re bad at pitching (because they haven’t watched any of our videos), or their product is useless, or they are just plain boring. More often than not, making it to the tv is about the personality, not the product. After all, it is a tv show. Every producer is only thinking about the ratings.
So after this massive purge the show will land on a group of a fun hundred companies. Those that make it to this point will fill out a 17-page application kit. They’ll spend months on audition tapes, answering emails from production, and having endless video calls. All the while producers are removing more and more companies from their list until they end up with the magic number: 158 companies.
This is the batch that will get to pitch the Sharks. 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. So about 88 will actually make it to the air in a given season, across 24 episodes. Out of those, about 52 will get a coveted yes - but not all of them will get the money. We’ll get to that later.
Ok, so obviously, what you see on TV is not what actually happened. Each pitch session takes about 45 minutes (and sometimes goes on for one or two hours), and this gets shortened because who watches 2 hours of anything these days?
Why the hell would anyone do 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. #AvoidingLawsuits.
But just being on TV is part of the reason why companies do it.
Take Bouqs, for example. When the Founder, John Tabis, pitched the Sharks, he was torn to shreds on live television. His flower bouquet company looked as if it was going to tank - but the Sharks were wrong.
Bouq’s knocked it out of the park. Millions in sales. Enough to make the Sharks regret it. And it’s not the only case where this happened. Take Steve Shashen and Lena Phoenix as another example. They manufactured a modern take on the traditional Huarache shoe, and they called it the Xero Shoes, and the stakes were high on this one. So, does this mean you don’t really need the Sharks? Do they bring the value, or is it just the airtime that brings value?
After all, it’s not as if they don’t make mistakes, but 57 Shark-backed companies have gone out of business - like the Breathometer. 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 0% equity and all was good until 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!
In the weeks after the episode aired, the company boomed. Xero Shoes 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.
Xero Shoes 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 of the many stories. It happens so often that there is a term for this, and the production company knew it well: The Shark Tank Effect.
As an entrepreneur, your appearance on TV means you reach millions of viewers. It’s even better than having a Youtube channel. 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 was an alternative. If, by chance, you didn’t want to sacrifice 5% equity, no problem! The alternative? You can pay them a 2% royalty on future sales in perpetuity.
However, these absurdly high commissions aren’t the worst of all. 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.
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, some 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 is third.
Then, it also helps to know how much money you should ask for. Below is a chart that shows the average deal handed out in the 13 seasons of shark tank. The lowest is 10k, and the highest ever was 5M. 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. The average entrepreneur on the show negotiates 18% of equity per deal. That’s a lot, and when you give so much, you should expect a good payout.
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 is called a data room, and we’ve also made a video on what to include in your data room.
While looking at the data room is when things don’t quite work. Usually, it's the Founder's fault. 90% of the deals fall through because the Founders believed the conditions weren't good for their business even though they took the deal on TV.
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. So, that’s it.
27 companies per season. So, landing a deal should be lifechanging, right? If not, then, why are the sharks there? 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. The core six, and the other guest Sharks, have one thing in common. It's the one reason why the show works. They all really 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 prove 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: 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 compare? Pretty incredibly. Even those companies that didn’t close the deal do great!
This show has a better success rate than most industry standards. The drama, the brutal admission process, and Mr. Wonderful, they’re all worth it. This is why Shark Tank exists and why 40,000+ companies a year are willing to face an admittance rate of 0.4% and a 0.2% chance of making it on air.
All of that to hear the Sharks say, “I’m in.”
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