By Daymond John
Have you ever wondered what it really takes to get a deal with one of us on Shark Tank? Have you ever been amazed at just how quickly we come up with the valuation? Quite a few people are curious, so in this article, I would like to talk about how we look at the numbers and decide whether or not something is a good deal. And, believe me, it goes well beyond gut reaction. We didn’t earn our places as Sharks for making snap decisions.
TWO THINGS WE LOOK FOR
To begin with, there are two major things we will look for when an entrepreneur walks in the room. The first has nothing to do with numbers at all. In my case, I know that the person is much more valuable than the product itself. So, I look for a winner, and by winner, I don’t mean someone who has it all figured out or someone who has never failed. I mean someone who has drive and passion. In fact, many of them have failed in the past. But they keep going. They keep working toward their dream. And that sort of want-to is so very important. If someone walks into the room and they don’t seem to care one way or another, they aren’t going to get a deal with me, plain and simple.
The second thing we look for is someone who has proven sales and long-term potential. Remember that we are investing our own money and we are taking on risk. We don’t want to lose. And I know from experience that throwing money at a company won’t necessarily help them. If you can’t provide me with real numbers to back up what you are saying, then I am not likely to make a deal.
THE NUMBERS THEMSELVES
Let me let you in on a little secret—well it actually isn’t that much of a secret, to tell the truth. We are called Sharks for a reason—we are vicious. And we know that this is how we got where we are. So, when we make a deal on Shark Tank, it isn’t just good for the entrepreneur (which it is, immensely so), it is good for us. We are going to make sure we will make money out of this.
There are several things a Shark will look at when deciding if the deal is good, numbers wise. These include the past profit as well as potential for future profit, the amount of money we are being asked for, and the stake in the company or share of the profits we are being offered. To get my point across, here are some numbers.
- The successful deals want an average of $184,000.
- Deals that don’t work out want an average of $290,000.
- The average equity offered in deals that work out is 26%.
- The average equity offered in deals that don’t happen is 19%.
The amount of income brought in by those businesses before they came on Shark Tank is pretty similar at just over $400,000 for both successful and unsuccessful deals. So, it’s not necessarily that we are looking for massive profit. We are looking for potential for success, and when entrepreneurs push for too much or come across as greedy, the deal hardly ever works.
So, that gives you some insight into how these deals work and what appeals to the Sharks. We do a great deal more calculation in our heads, but this gives you a general idea.
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