Shark Tank: Venture Capital Powerhouse Or Faked For Television?

Shark Tank wrapped up its fifth season Friday. The ABC reality series is a made-for-television glimpse into the high stakes world of venture capitalism. On the show, small business entrepreneurs can get an investment into their companies, often at a hefty price.

That hefty price might be a significant stake in the company, a royalty on sales, a loan, or another creative scheme negotiated under the heat of set lights and the prying eyes of television cameras. The deal becomes final after a due diligence process that happens off-camera, according to Success magazine — and some deals never actually close.

The Shark Tank investors want a high return on investment, according to Entrepreneur writer Stephen Key. This means, according to Key, that the sharks are looking for certain things in a pitch: sales, a large market and a patent on a novel product or idea. But these three things are not always deal breakers for real-life venture capitalists, nor is the lack of them a sign that a business is doomed to fail.

Key says that a large market creates its own set of problems with scalability. Very few products are unique enough to get a patent, and if a business has high sales, it should get a CFO — not an investor.

So what is the appeal of Shark Tank? What’s in it for the business owners that appear?

In a word: exposure. Michael Yim, who made history by landing the first deal on Shark Tank where all five sharks invested, told The New York Post that the marketing value of the tank is high:

“It has the most unique and powerful platform in the world, not just in investing but as an entertainment platform… You don’t get just an investment, you get millions of dollars in marketing exposure. That’s something no other VC [venture capital] in the world can do.”

Yim’s product, a Breathalyzer for smart phones, went from $140,000 in pre-orders to projected revenues of $10-12 million after his Shark Tank appearance.

But entrepreneurs just out for publicity can stay home. Shark Tank casting director Scott Salyers told TV Guide:

“We have to keep our eyes open for companies that want to go on for a 10-minute commercial. We do background checks, we ask for a sample, we see if they really need the money because if it’s a company that generated $5 million a year in revenue, maybe they don’t need our show.”

As previously reported by The Inquisitr, shark Mark Cuban rebuffs any suggestion the show is faked. Executive producer Clay Newbill also told TV Guide that Shark Tank‘s integrity is protected by staff:

“[T]he sharks know nothing about the businesses before they come in and pitch them. The show wouldn’t work if it did [and actually] we go to great lengths to make sure they don’t. So all they know is the person’s name before they walk in the door.”

That reality in the reality show may be good news, especially for devoted fans of Shark Tank.

[Image: ABC]