INTRODUCTION
With the launch of its very first season Shark Tank India can grasp the attention of the Indian audience. Shark Tank India is an adaptation of the globally acclaimed reality TV series Shark Tank. In the series, young entrepreneurs seek funding, mentorship and valuable guidance in exchange for equity or ownership of the company for their start-ups. They pitch their innovative idea for the start-up or functioning start-up to the ‘sharks’ by highlighting the uniqueness of their product or service and market potential.
The ‘sharks’ are accomplished and successful business entrepreneurs. They don’t only bring funds to the table but also their experience, expertise and knowledge about the capital. Sharks have a wide variety of businesses that stimulate their knowledge about growing a business, investing and growing. A rough and intense grilling session of negotiation takes place between the entrepreneurs and the sharks. Counter offers, ‘heat of the moment’, and strategic discussions make the show entertaining and interesting to watch.
Start-up companies with the potential to grow need a certain amount of investment. Wealthy investors like to invest their capital in such businesses with a long-term growth perspective. This capital is known as venture capital and the investors are called venture capitalists.[1] Venture capital is a form of private equity funding. Start-ups put up the offer for the investors to invest in their company to gain funding. They publish information about their profitability, future growth prospects and goals for the investors based on which the investors make their decisions.
Shark Tank and Venture Capital are both through the lens of the larger picture the same. They are a medium through which companies obtain finance and guidance for their organization. But at the same time, they also vary in certain ways. Both venture capital and shark tanks have unique characteristics and ways of operating that distinguish them. Grounds like the stage at which venture capital, purpose, goals and selection criteria can be used to distinguish the two. To do a comparative analysis of the two it is important to understand what is meant by Startup financing and why is it so crucial for startups and companies.
WHAT IS FUNDING AND STARTUP FINANCING?
Funding is a process through which a business enterprise or entrepreneur raises funds for its business or start-up. These funds are used for different purposes like executing the business idea or expansion. Different kinds of funds are available for these different purposes. Venture capital and Shark Tank are two mediums through which fuel to accelerate innovation into reality takes place.
Startup Financing means some initial infusion of money needed to turn an idea into reality.[2] This type of financing is done to commence business activities. Crowdfunding, angel investors, trade credit and venture capital are some types of startup financing. Shark Tank is also one of them. While the primary objective ofboth venture capital and Shark Tank is, these different types of financing ways have their unique characteristics, advantages and disadvantages.
Let’s now look into how Venture Capital and Shark Tank share some common ground while being vastly different.
SIMILARITIES
Venture capitalists are on the lookout for budding entrepreneurs whose business ideas seem to display market potential and wealth. Venture capitalists invest in these startups to earn profit for themselves and for wealthy business organizations (organizations that invest their money in venture capital organizations). Similarly, even in Shark Tank, the sharks invest in the startup ideas of the selected candidates. Also, both these financing mechanisms carry out due diligence but at different stages of the financing process.
Venture Capitalists can provide practical advice and assistance to the company based on experience with other companies in similar situations. They also possess a network of contracts in many areas that can add value to the company. The Sharks are also well-experienced business operators with first-hand knowledge of business problems and solutions in their field of expertise. This enables them to provide guidance and mentorship to the entrepreneurs.
DISSIMILARITIES
Venture capitalists are solely dedicated to earning profit through investing in companies while Shark Tank is a TV entertainment series that provides a platform for young entrepreneurs to attain investment. Its producers used to take 2per cent of the equity to let pitchers pitch their business model to the sharks. Deals that were successful but not flamboyant enough for the screen were not aired. Thus, Shark Tank also has the agenda of TRP in its list.
Venture Capitalists to invest in startups get investments from wealthy business organizations seeking to earn some extra profit through this investment. These investments are then used by the venture capitalist to fund the potential business ideas of entrepreneurs. In contrast, in Shark Tank, the sharks invest their own money into the business enterprises.
As mentioned though both the financing types carry out due diligence, it is at different stages. Due diligence is the process in which the investor makes a verification of the potential of the deal. The factors which are investigated during initial screening are looked into in-depth at this stage. The investors check if the business has the potential to survive by investigating in depth. They conduct research in detail. They look into the market, product, team, and business model[3]. In Shark Tank, the deal is struck through a heated round of negotiation before due diligence when the shark writes the said amount of cheque to the entrepreneur. While in venture capital the due diligence takes place after screening before striking a deal. An exit plan is also formulated in the deal between venture capitalists and entrepreneurs, unlike Shark Tank. On the brighter side, Shark Tank airs on live television providing startups with a huge network for advertisement and promotion which venture capitalists deliberately have to do.
Venture Capital could also be called a safer bet for startups because a more systematic and legal take is followed by these institutions. A full-fledged contract is formed between the two parties that is the investor (venture capital company) and the startup. Shark Tank on the contrary has met with several contradictory and disappointing responses. The successful pitchers who were offered capital, recordings of which aired on television did not in reality come to life. A survey conducted by Inc. 5 revealed that some were ghosted, and some were made to feel hopeless and useless about their startup ideas. Not to mention, the very foundation on which the show garnered publicity — to provide a platform to entrepreneurs who struggle to raise initial money for their ventures — seems to be weak[4].
In conclusion, Venture capital and Shark Tank are like two rays starting from the same point but have divergent paths. The core of both types of financing sources is funding startups but their approach, medium and goals are very different.
Author(s) Name: Tanisha Agarwala (OP Jindal Global University, Sonipat)
Reference(s):
[1]‘Venture Capital- Definition’ (Economic Times, 19 December 2023) <https://economictimes.indiatimes.com/definition/venture-capital> accessed 19 December 2023
[2]Vandana D Nagpal, Advanced Financial Management (April 2023 edition, CDS Directorate on behalf of The Institute of Chartered Accountants of India, ICAI) 15.1
[3]Akansha Srivastava, ‘The process involved in venture capital due diligence’ (iPleaders, March, 2022) https://blog.ipleaders.in/the-process-involved-in-venture-capital-due-diligence/#Process_of_due_diligence accessed 19th December 2023
[4] Bismah Malik, ‘Committed And Ghosted: Why Young Founders Are Losing Faith in Shark Tank India?’ (Inc42, 23 June, 2023) <https://inc42.com/features/why-young-startup-founders-are-losing-faith-in-shark-tank-india/> accessed 19th December 2023
