Returns. That's what Shark Tank investor Mark Cuban wants. It's all about the math. When he's listening to pitches, Cuban is likely thinking about the potential multiple and what the probability of achieving that multiple is.
The series, which has now which has now regionalized in countries as far flung as Australia, teaches viewers a lot about the investment and venture capital world.
When a Shark invests, they have a rate of return in mind. It's not based on percentages, it's based on multiples. So if a Shark thinks like a venture capitalist and puts $100 in, they want to see a path to $300 and then to a $3000, or 3X to 30X return. That exit would be a 3X to 30X multiple in exchange for money and a percentage of a company. The obvious reason is so few venture funded companies survive and thrive that the couple that do, need a high return so the portfolio performs.
It's important for small businesses to understand this so they are making smart decisions when accessing capital. Some small businesses just want to run the business profitable enough to cover their life costs and in that case, investment from VC is rarely the best option.
In many cases, these entrepreneurs and small business owners are giving away big chunks of their companies for very little capital in return. It shows how critically underfunded our small businesses are and how difficult it is for many owners to access capital.
In aggregate, small businesses are the largest contributors to GDP, they generate the most jobs but as a group they find it extremely difficult to access funding to grow or invest back into their operations. For financial institutions, this market has for years been highly fragmented, the deals too small to economically write for the level of risk attached to them.
It's a vicious cycle. In a recent Xero survey of more than 2000 small business owners a whopping 65% blamed financial issues, including cashflow visibility and access to capital, as the reason for business failure.
One of the biggest worries for small business owners is cashflow. Shark Tank has shown the importance of figuring out how you're going to fund your operations, whether it be through outside investment, a bank loan or personal savings. It's good fiscal hygiene to lock in your capital source when times are good. It's much easier to access funding when you don't need it than during a cashflow emergency.
Without access to capital, small business owners constantly walk the precarious line between staying afloat and going under.
But technology is starting to help. Increasingly, small business owners are using central platforms to manage their finances in the cloud. By working on a connected platform, big financial institutions are able to meet small business owners in one place - eliminating much of the previous hassle that came with servicing the small business market.
This relationship between a small business owner, their advisor and financial institution is called the financial web. Having all three parties connect on one platform is starting to improve access to capital for small businesses.
The new financial web is underpinned by the same foundational principles of the modern web. Data moves freely. The customer is in control. Transparency drives compliance. And as leading financial institutions continue to put their weight behind the financial web, a more potent impact will be felt across our economies - in the form of opening money flows - something big business has benefited from for years.
Through a fundamental rewiring of how small businesses operate, we light a fire under the engine room of our economies. Millions of new jobs will be created. New categories of work will be established on top of these new platforms and new services will be born.
We expect in the next five years, the pace of innovation will be quicker than the last ten. And unlike previous technology shifts, the benefits won't be experienced by just big enterprise - they will flow to the smallest businesses, deep down in the engine room of our economies.