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Investor Highlight: The Shark Tank Effect

Investor Highlight: The Shark Tank Effect
October 5, 2021

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Welcome to the Shark Tank Fan Club edition of the Daily Stack, where we’ll be discussing the Sharks who are really Angels, the successes and failures, and the show's effect on American innovation.

Showtime
The show debuted in September of 2009 amidst the Great Recession -- aka, the subprime mortgage crisis. Employment had fallen 6.2% and roughly 3.8 million Americans lost their homes. As we’ve seen repeated in the pandemic-related recession, innovation rises during these times. In 2009, more than 550,000 new businesses were started as people were laid off and business-as-usual all but dried up. Enter Shark Tank, a reality television show in which families and friends became co-founders and brought their ideas to a panel of “sharks,” business savvy straight-shooters with the personalities and mental-math skills to deny or supply funding to individuals hoping to turn a dream into a fully-fledged business.

The Sharks
The beauty of the show, beyond its never-ending supply of quirky and ingenious business ideas, is in the chemistry, infighting, and personalities of its sharks. There was Laurie Greiner, the QVC Queen and inventor; Mark Cuban, billionaire entrepreneur and Dallas Mavericks owner; Mr. Wonderful, the ironic nickname for sharp-tongued businessman and author of the series “The Cold Hard Truth”; Barbara Corcoran of real estate empire the Corcoran Group; Robert Herjavec of cybersecurity fame & fortune; and Daymond John, the Founder of American apparel brand FUBU.

The appeal of the show vacillated between feel-good stories of triumph in the face of adversity and dream-crushing reality checks. These are people who’ve had the light-bulb moments we’ve all had, turning their “there’s got to be a better way” frustrations into products and viable businesses. It’s refreshing in that rarely is a founder a Harvard MBA grad or son of a world-renowned business person, but rather stay-at-home moms, father-son duos, and former lemonade-stand operating teenagers.

The Shark Tank Effect
The sharks are always wary of entrepreneurs looking for free press over making a deal. Here are a few instances of mega-success for everyone involved.

Scrub Daddy is a durable smiley-faced sponge that picked up a $200K investment for a 20% stake by Laurie Grenier in 2012. It has been the show’s most popular product to date reaching 25MM sponges sold in 2019.

Bombas is the sock company on a mission to “bee better” (hence the bee logo) with a buy-one, give-one model. It made a $200K deal with Daymond John for a 17.5% equity in 2014. The company is now reportedly worth more than $1BN. Earlier this year, it expanded into men & women’s underwear contributing to the D2C movement chipping away at larger lingerie brands' market share.

Squatty Potty wants you to “join the bowel movement” with the company's #2 bathroom accessory. Laurie Grenier invested $350K for a 10% stake in the mother-son duo’s idea. The television spot earned the company $1MM in sales within 24 hours.

What happens after the handshakes can sometimes get awkward. Failures include The Body Jac, a piece of exercise equipment (or torture device) that was Barbara Corcoran’s worst investment in show history. Show-No Towels was the stuff of QVC dreams, but the company ended its business relations with fellow-inventor turned investor Laurie Grenier under apparently bitter circumstances.

The show maintains a high viewership heading into its 13th season. But many warn the Shark Tank Effect has led many wannabe entrepreneurs into deals with angel investors that don’t pass muster. Then again, it’s all in the name: don’t get into the shark tank if you don’t wanna get bit.

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[NY Times]
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236,428 Companies | 103 Funding Activities | 96 M&A Deals

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