November 1, 2014

Entrepreneurs Give Up Equity for Shark Tank

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Entrepreneurs give up 5% of their companies to appear on the ABC reality show Shark Tank. Some might wonder whether such a sacrifice is worth the opportunity to pitch your idea to “rock stars” like Mark Cuban, owner of the Dallas Mavericks, and a panel of other wealthy investors.

“There is a myth in our culture that being successful in business involves raising money from well known individuals. That’s partially why Shark Tank has taken off. But its not always the case,” says Ami Kassar, founder of MultiFunding, a Philadelphia-area firm dedicated to helping small businesses find money.

In a recent post for The New York Times entrepreneur blog, Kassar talks to some small business owners who had turned down their chance to do the show because they considered opportunity cost too high. In this post, Kassar also looks at other options out there for gaining the funding a small business needs.

Investment Opportunities

Swimming with the sharks. Sean Tice and Kristy Hadeka had a tough choice to make. This pair of entrepreneurs runs a business that makes cheese boards out of slate. But when they received an invitation to pitch their company to a group of super star investors on national TV, they found there was a price attached. You’re the Boss

Practicing your pitch. If you do decide to pitch your idea to deep-pocketed investors, there are some things to realize first. Even when they don’t have their own national television show, these people are busy. Even grabbing their attention with your presentation will require plenty of work and research. Corporation Centre.ca

Adding up the numbers. Before you do any pitching to investors, however, you have to know how much money you really need. Don’t ask for too much, since you will be required to explain exactly why you want it.  Conversely, avoid understating the amount of money you’re going to need. You will lose credibility if you can’t operate your business with the funds requested. Startup Professionals Musings

Other Funding

Checking other options. Sometimes venture capital firms and other deep-pocket investors are not a good fit for your small business idea. Get creative with your financing options and tap some sources less talked about but just as available. Using these funding options ensures you won’t be giving up equity in your company. Lonely Brand Blog

Banking for small business. It turns out that one of the best places to go for small businesses in need of capital is a familiar source indeed. A recent survey found small banks increased their lending in August, while big banks offered fewer loans over the same period. Alternative lenders also increased the amount of money offered to businesses last month making them another viable option for small businesses. Small Business Trends

Starting with Nothing

Bootstrapping for beginners. Still another option for business startups could be to begin with no money, or at least no outside funding at all. In this podcast, bootstrapping expert and entrepreneur Bijoy Goswami talks about another option for starting a new business. Small Business Elevator

Suggesting bootstrapping principles. Here are some suggestions for an entrepreneur who’s decided to take the bootstrapping approach. Tom Ewer calls these suggestions “principles”, however bootstrappers may use a variety of approaches. It’s important to find a solution that works for you, but Ewer’s post is a great place to start. MyWifeQuitHerJob.com

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  1. Great article! As a business owner myself I have learned a lot from watching Shark Tank. Along with the passion you must have a vision for your business. You have to see yourself reaching maximum success and push towards that. I agree that valuations, equity compensation/structure, amount of funding needed are all very important. When considering valuations many entrepreneurs want to base it on the future potential while investors are most interested in the future value.

  2. Too many people are focused on what they are “giving up” as opposed to what they will receive. The entrepreneurs that appear on Shark Tank get way more than an opportunity to pitch their business to some incredibly successful entrepreneurs, they also get advice and exposure which is priceless. I’m sure they see a significant spike in web traffic and sales just for appearing on the show and this is worth alot of marketing money alone. Add that to the chance to partner with one of the “sharks” and I’d say it’s a gamble well worth taking. You can’t simply look at the amount of equity they are giving up because to get a successful entrepreneur like any of the sharks is priceless. Their experience and their contacts are something you simply cannot “buy” and I still am amazed at some of the offers that are turned down.
    Knowledge is power and someone elses knowledge is worth alot of money. You would never get any successful entrepreneur to take a chance on your business, hook you up with their contacts, and help you grow your business without paying for it. Successful entrepreneurs, investors, and VC’s simply don’t have the time to site and listen to everyone’s “pitch”.
    My advice is, if you REALLY believe your company is great and you really need help getting to the next level, then gamble on yourself and quit focusing on what you are giving up and start focusing on what you will receive.
    If you’re not willing to gamble 2% or 5%, then you don’t believe in yourself or your business 100%…in my opinion.

  3. I started a swimwear company because I could never find a swimsuit that I liked or looked good.
    I started selling online only and have had tremendous success and now all I need is the connections
    to get into retailers. That is the only reason why I would need shark Tank but it is not worth what I would
    have to give up!

  4. At the beginning of this month I launched my own search engine advertising company. We take small and large businesses and advertise their products or services to Government employees. All the business has to do is offer a discount savings or incentive. I did some local marketing on the base APG MD my website was sent out to over 5k employees on a Tuesday morning on that same day from 12pm to 1pm my site received 657 hits. My goal is national and my target audience is over 52million consumers all Gov or Veterans. I’m in the right business with the right user providing the right service SAVINGS.

  5. These kinds of equity for services deals are becoming more and more popular. There is a service called Services4Stock.com where these emerging companies can get linked up with a number of service providers. These service providers will take a small equity position in exchange for services rendered.

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