Shark Tank: Dating Game for Entrepreneurs
ABC's Shark Tank features five billionaires who listen to a pitch by budding entrepreneurs who need additional capital and expertise to grow their company. If the innovative owner can convince a Shark to invest in their company, they can become millionaires.
However getting from the "tank" to millionaire status is not easy. The same is true for middle market CEOs who want to sell their company. In order to maximize the value of their company in a sale, CEOs need to know how to swim with the sharks and what different sharks prefer to eat to maximize the value of their company in a sale.
How to Date a Shark
Most successful middle market CEO’s also realize they need an expert M&A advisor when selling their business to increase the likelihood of maximizing returns while finding the ideal investor or buyer during the marketing phase of the sales process. Private equity groups are not interested in taking over your business. They simply want to invest in successful businesses, take them to the next level, and get a good return on their investment.
Shark Tank is really no different from the arena that any business owner attempting to sell their own business finds themselves in. Most owners have very limited, if any, experience selling businesses. Investors have years of experience investing in and buying businesses. Owners do not know how or where to find potential investors, and when they do find an investor, oftentimes they do not know if it’s the best potential investor or if the price being offered is valid.
Business owners and investment bankers can learn a lot from the evolution of Shark Tank from the first season to today. In the first season of Shark Tank, lucky entrepreneurs often created a feeding frenzy among the sharks that resulted in high drama and competitive bidding by several sharks. During the first season, this happened more often because the Sharks were more open-minded and willing to invest in several industries. In the current season there is much less chance a feeding frenzy will happen.
The Sharks will cite the ill-fated investments they made in the first season in industries they knew little about as reasons to bow out of current opportunities. Research shows that investors who invest in industries they have experience in are three times more likely to succeed. The Sharks learned the hard way. Now, they usually invest in companies involved in industries they already know. For example, tech billionaire Mark Cuban, now tends to invest in tech companies, and fashion mogul Daymon John looks for companies involved in clothing and apparel.
Before they even step on stage, every participant on Shark Tank should know exactly which Shark or Sharks would be most likely to invest in their business. They should know the information those sharks will demand. CEOs selling their businesses also need to realize that most investors specialize in certain industries. To identify who the ideal investor would be for their business, they need a seasoned investment banker who can access a wide network of established and successful investors. An experienced investment banker will know which investors to approach and which ones to avoid. They will also know how to anticipate questions and requirements these investors will have.
The drama on Shark Tank has actually increased as the show has aged. Today, the show could easily be called, "The Dating Game." When an entrepreneur is able to partner with an established investor who already knows the industry, their chances for immediate success skyrockets! The drama occurs when the entrepreneur has to choose between two or three sharks. One may offer more cash, but the other may have the industry connections to launch the company into the stratosphere. They are standing on stage all alone and the pressure is on. Some wait too long to make a decision and the Shark retracts their offer. Others simply turn down what could have been immediate success.
They key for entrepreneurs is to know who is wooing them better. They seek out a proven investment banker who knows where the sharks are, what they like to eat and how to work with the best sharks to maximize the company’s value and meet the owner’s personal and financial goals.
JEFF GROSS | Columnist | vice president, Allegiance Capital
Jeff Gross is a Vice President at Allegiance Capital. He has closed more than 100 transactions, and made seven private equity investments valued at more than $2 billion dollars during his 15 year career.