Even The ‘Shark Tank' Losers Have To Pay Up
By now you should know the premise of ABC's reality hit “Shark Tank.” A CEO/owner of a startup is lucky enough to be chosen to appear on the show. Said entrepreneur then makes a pitch to a panel of incredibly rich investors, like Dallas Mavericks owner Mark Cuban and FUBU founder Daymond John, and offers a certain percentage of their company for a certain amount of money.
If the “sharks” like what they see, they either take the offer or make a counteroffer. If the entrepreneur accepts, he has a powerful investor in his corner. Either that, or he/she just got taken advantage of (depending on how devious/convincing one of the sharks is on the day). But it's all good.
What you might not have known, however, is that even the loser on the show has to give up something. Today, the New York Times reported that for appearing on “Shark Tank,” the presenters have to give up 5% of their company or 2% of their annual profit. Essentially, an aspiring millionaire can come on the show and win nothing, but still have to give up something. At least, that's the way it seems at first.
“Business owners who've appeared on ‘Shark Tank' say that the experience was 100% worth the financial sacrifice,” says Forbes writer J.J. Colao. “Derek Pacque is the 24-year-old CEO and founder of CoatChex, a company that has developed a portable, automated system for checking coats and bags at events. He turned down an equity investment from Mark Cuban when he appeared on the show in September, but still agreed to give up 2% of his young company's annual profits—FOREVER—for the exposure.”
For some contestants, the exposure itself is worth coming on the show. A few entrepreneurs have explained how their profiles shot up quickly after appearing on “Shark Tank.” Pacque, for instance, had his website receive 1,000 hits per second as his episode aired and raised $200,000 in funding afterwards.
Meanwhile, New York Times writer Mark Cohen tells the story of how the entrepreneur 0f one company, Wicked Good Cupcakes, sold $250,000 worth of cupcakes in the eight days directly after their episode aired.
The positives that can be gained from simply appearing on the show, as well as the valuable advice that can be gained from having a lengthy meeting with five of the best investors in the world, makes “Shark Tank” a prize in itself.
In some ways, contestants can then become the Sharks, using the investors' time without any intention of accepting an offer, knowing that they could attract attention from more willing and less stubborn benefactors.
Ryan Frankel and Kunal Sarda, co-founders of human-power translation service VerbalizeIt, definitely got the idea.
After “accepting” an offer of $250,000 for 20% of their company from O'Leary last July, the two partners reneged on making the deal, which valued their company at $1.25 million official.
In the 72 hours after the showed was taped, the company had 20,000 new subscribers to their app, according to the Times, which came after they'd already accepted a deal from another investor that valued their company at $1.5 million.
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