I gotta admit, I love this show…but im always scratching my head at the analysis the sharks are doing. If you dont know the show, its a bunch of entrepreneurs pitching their businesses to these venture capitalists (mark cuban, daymon john, lori greneir, barbara corcoran, Kevin O’leary, robert herjavec) in a reality tv format. Anyways, my problem involves the way the sharks analyze the deals. For example, someone will come on and say something like, “Im seeking 100k in exchange for 20% of my company…”. After the presentation, the sharks usually beat them up saying something like “youre valuing your company at 500k, you only have x dollars in sales, youve way over-valued it” and they make a counter offer. For me it seems like theyre basing the pre-money business on a post-money valuation. It seems fundamental to me so maybe im missing something or maybe its just makes it easier for the viewers to watch. But still…obviously once you get the capital infusion and the strategic partnership, fundamentally its a different company. Anyone else watch this show? Anyone with experience in VC do something similar?
It’s TV brah.
In any case, they are making their offer on a valution of a revenue multiple.
It seems like they try to get to an ebit or GP multiple, if the person has enough information. The way the show is edited, it seems like they just pull numbers out of thin air. I’m sure there’s a lot that goes on that dosn’t make it into the final show.
^ Based on the level of ‘sales’ questions, I’m convinced it’s a EV/Rev Multiple. The Sharks know cost well enough and know how to come to a level of earnings.
You can also see a stack of papers on their desks which I bet relate to the person pitching.
From what I’ve seen, their initial offers are usually absurdly low. Sometimes the sharks will make initial offers that value the company right above prior year Gross Profit.
Would definitely like to hear somebody’s perspective that has VC experience.
Having been in a VC backed company, they are robbing some of these guys blind. However it is a quick pitch with limited due dilly.
Back when I did a bit of M&A in said company, I found their exit multiples close to 10x Rev. However, this was back prior to most of you young pups being able to vote. The M&A market was hot and with high demand comes high multiples. The VC firm that exited at over 10x rev cash are probably laughing all the way to the bank.
However, when you have a company that’s been around 8 months and earned $20k, 1x rev is generous. Like most multiples in valuation, it’s all relative, and these Sharks know the market pulse better than this grown ass man.
Yeah Im sure they have due diligence teams assessing the feasibility of people trying to get on the show, and then the sharks and their attorneys probably hammer out all the details later. But the revenue one was just an example, theyve used cash flow multiples using the stated Net Income as a proxy for fcf, as well as other multiples. But even still…is it actually appropriate to base the post money valuation on the pre-money multiple? Ive never worked in VC so i dont know how this works in practice.
^i think only some of the entrepeneurs catch on to this. if the other side doesn’t know about it, why give it away?
I don’t like the show as much as I used to, now that people are using it more for the exposure than reaching a deal and O’Leary seems bent on doing his best Simon Cowell impression. The Shark valuations often don’t make sense, and companies throwing off six figures in earnings and cash flow are seeking $100k for 25% equity, just doesn’t add up. I like listening to Cuban, but have yet to hear Daymon say anything intelligent.
On top of that, the value of partnering with a shark decreases with each episode. If you can’t benefit from getting your product in sports arenas (Cuban), clothing stores (Daymon), or QVC (the younger chick) then you might get an annual phone call or visit at best. Agreed with dspapo there’s definitely a lot that goes on behind the scenes.
I helped a friend of a sort-of-friend try to get on the show last year by running some numbers for them, but I don’t think they made it on. What I gathered from talking to them is that it is a long, involved process of actually getting on the show.
^ Mad racist brah!
Hah not at all- Daymon just sentiments what other sharks say or makes a random joke. The only thing he brings to the table is offering to get them connected with fashion outlets and definitely leads the pack in saying “I wouldn’t be able to help you, so I’m out.” Hey, at least he’s honest! Or maybe you were referring to my dislike of O’Leary as racist?
I wonder why Cuban never offers the multiple Yahoo gave him for Broadcast.com. I think it was 440x revenue.
Some of the offers the shark make are just retarded. Especially most of O’Leary’s offers. He either wants a patented, profitable product that he can help ‘license’ or a royalty on everything else so he can get his money back. I can’t believe entrepreneurs actually look forward to making a deal with him.
I think the best offers come from Cuban and Robert Herjavec.
Damon is the most arrogant and the only reason why he is on the show is because they needed a token rich black guy. (Prove me wrong…)
Also can’t stand that younger blond QVC chick.
Having said that, what have been your favorite pitches so far?
A few that come to mind for me are the easy attach hose thing, wine in a glass, scrubber thing… and i m drawing a blank… post over.
was that hose attach thing a setup? Robert says “isn’t the value in being able to use this for my garden hose?” and the guy is all “you mean like this?” and pulls it out of his pocket. great moment, but seemed staged.
I have only watched the show a couple of times, but I did see the wine in a glass guy when he came on a second time. I thought he was a complete DB who came on simply to show the sharks how well he did without them. I practically cheered when Cuban said he was out. The guy with the gold producing electrical generator was pretty amusing.
I actually have a lot of respect for daymon, i mean the dude built an empire out of his garage and had to hustle to do it. That said, i think its pretty ridiculous to just bail out of a deal because someone takes more than 5 seconds to think it through like he ofte does. It seems immature and like making a good investment is not his priority. Then again, it could very easily just be the editing for TV. I liked the water bottle designed by that Goldman Sachs dude. He seemed very on top of his numbers and the sharks seemed fairly timid with their offers. One last thought, I hate how they do a spotlight on companies from te previous season. Obviously these companies are going to get a spike in sales just from being kn the show. Show where tthe season 1 companies are…
Someone told me that out of the successful deals reached on the show, only 30% pass the due diligence test done afterwards. I’m not surprised. How many would give away hundreds of thousands after a 20 minute pitch with no spreadsheets backing your sayings.
The Indian kid that was pitching the “cheating” app was a good one.
I just saw the grinds episode, and I actually want to buy the product. It’s basically skaol pouches, but with coffee.
They pitched it as a way to help people quit chewing, but I actually see it as a way to get MORE people to chew. Altria was just talking about how cigarette volumes are declining but chew volumes are increasing, so people are chewing more.
If you start with coffee lippers, it’s a real easy transition to tobacco. I could see the company entertaining buyout offers from both the coffee and tobacco companies.