Many of us have watched an episode of Shark Tank, the show where an entrepreneur has to
pitch his business idea to the panel of Investors (Venture capitalists), after which they decide
whether to Invest or not.
But have you ever thought what made Ashneer Grover or Aman Gupta invest in the
company, although they make it look easy, it’s harder than it looks, and they are able to do
this as they are Venture capitalists (Serial Investors) who provide Capital to the companies in
exchange for Equity stakes.
Behind Every deal, they have already thought of factors like: Industry Growth, Management
and Team strength, and all other possible scenarios that could hinder their main goal of
recovering the Capital they infused into the Business.
Now, how do the sharks get through all the information, you may be asking? Well, they have
been part of Various deals as an entrepreneur trying to Raise funds through Venture capital
and as a Venture Capitalist Investing in other startups.
To explain, let me talk about Venture Capital and how their skills benefit sharks.
Venture capital (VC) is a type of financing that involves investors providing money to
startups that have high growth potential. These investors, known as venture capitalists, are
firms that are looking to invest in innovative and promising ideas. In return, they take Equity
in the Company at a Valuation that they think is suitable for getting the return they want.
Capabilities VCs have that help them make the right decisions.
- Investment Expertise: VCs have in-depth knowledge of many industries, markets, and
investment trends. To make informed investment decisions, they examine startup
business models, market prospects, and competitive landscapes. - Network and Connections: Venture capitalists bring significant contacts to startups.
They have vast networks of industry experts, potential consumers, partners, and other
investors who can assist businesses in growing and succeeding. - Due Diligence: Before investing, venture capitalists perform extensive due diligence
on the startup’s technology, staff, intellectual property, market potential, and financial
projections. This allows them to weigh the risks and benefits of the investment. - Operational expertise: The majority of VCs have worked with companies of varying
sizes. They aid new businesses by making them more efficient, effective, and
optimized. - Exit Strategies: Venture capitalists help young companies find lucrative ways out—
either through acquisition or an initial public offering (IPO)—that will net a profit for
everyone involved. - Negotiation: Investors in venture capital negotiate investment terms and equity
ownership. They structure transactions that align the startup’s and investors’ interests.
So, because of these capabilities, Venture capitalists or sharks are able to invest in a startup,
and because of the reasons above, startups want to go to the Shark Tank or Venture Capital
for Funding. So, you must be thinking, is Shark Tank and Venture Capital the same? The answer is yes and no.
Yes, as they do have the same fundamentals and core concept, and they have the same goal of Investing in Growth Startups and Getting a Return on that Investment.
No, because even though they are providing Capital in return for Equity stakes, they are
doing the same at different stages, and VC deals are heavier in terms of Funding and
Valuation.
For example, If your company is at the initial stage and your capital Requirement is below Rs
10–15 crore, then the shark tank is a good place to go for raising funds, but if your company
is at the expansion stage and your capital requirement is $150 million then Venture capital is
the place to go, reason is that venture capitalists start with a pooled fund of more than a
billion dollars, whereas sharks are investing their own money, so the stages at which they
invest differ along with the amount and frequency (on average, a venture fund is raised every
18 months).
So, next time you’re watching Shark Tank and thinking about how they’re knowing where to
invest, remember that the sharks are Venture capitalists only who invest their own funds
rather than pooled funds.
