I watch a lot of Shark Tank episodes. Like most “reality shows,” Shark Tank is somewhat artificial. The show does not purport to be an accurate portrayal of how entrepreneurs typically raise capital, but I still think the show can be instructive. From time to time, mostly in my undergraduate classes, I show clips from the show that are available online.

(creative commons image, no attribution requested)

After the break I share some of the lessons I think entrepreneurs (and lawyers advising entrepreneurs) can learn from Shark Tank. After this first list of lessons, I share a second list — things folks should not take from the show. 

Helpful Takeaways.

• Power of Proven Success. As anyone who has watched the show knows, past revenue & profit seems to be of incredible importance to potential investors (a/k/a “the sharks”). It is possible to get an investment without a proven track-record, if you have the right product, but nothing seems to bring out the offers like healthy, proven revenue and profits. Projections, on the other hand, are given little weight, unless tied to purchase orders, and entreprenerus can actually hurt their credibility by providing absurdly optimistic projections. 
• Importance of Positive Trends. Even if you have healthy revenues and profits, declining trends can scare away the sharks.
• Protect Intellectual Property. The sharks want to make sure your intellectual property is protected, but see the first warning in the second list below (not all intellectual property needs a patent).
• Consider Competitive Advantage(s). All the sharks, but especially “Mr. Wonderful,” seem concerned with the business’ competitive advantage(s) and whether it has anything proprietary. If your business can be easily replicated, soon enough your margins will be squeezed.   
• Be Thoughtful, But Decisive. The sharks seem to despise indecisiveness. If you struggle to make a decision about an investment offer, how are you going to make other tough business decisions? (But see the warning about not giving in to unreasonable investor pressure).
• Respect the Potential Investors. A number of entrepreneurs have lost investments simply because they disrespected the sharks by cutting the sharks off, not listening to questions, focusing on other sharks while one shark had an offer on the table, etc.      
• Consider the Investors’ ROT (Return on Time). All of the sharks, but especially Mark Cuban, are mindful of the time costs involved in the potential investments. Many entrepreneurs claim they are on seeking investment from the sharks because of the connections and mentoring the sharks can provide. A common response is – “so you want me to pay you to do your job for you?” The sharks want to invest with self-starters that will require relatively little hand-holding. For the sharks, the potential ROT is sometimes more important than the ROI. 
• Personality Matters. Sometimes the sharks decide not to invest simply because the entrepreneur comes across as someone who would create a difficult working situation because of the entrepreneur's personality. Even if the business is a good one, working with someone you dislike can make the venture a mistake.
• Careful with Conflicts. The sharks seem wary of conflicts. The most common seems to be conflicts between the entrepreneur’s day job and the business in which they are asking for investment. Also, sometimes an entrepreneur is selling an interest in one product, but is holding back a potentially competitive product. For the most part, the sharks want the entrepreneurs fully committed to the business the sharks are investing in and the sharks also generally want the entrepreneurs to allow the sharks to invest in the entire business – not just pick and choose certain products.
• Honesty is the Best Policy. If the sharks catch an entrepreneur in a lie, or even in omitting information, the sharks often then assume the worst and decline to invest. If there is something negative about the business – a bad deal, an outstanding lawsuit, a disgruntled partner, etc. – the best course seems to be to disclose it early and attempt to explain it.

But Remember.

• Not Everything Needs a Patent. Some of my IP attorney friends tell me that since Shark Tank has gained popularity, more and more entrepreneurs are insisting on patents, even if the cost is not justified and even if the material is not something that is patentable. While it is important to protect your IP, both practical concerns and patent law need to be considered.  
• Do Not Give in to Unreasonable Investor Pressure. Mark Cuban sometimes institutes the “shot clock” where he demands an answer on the investment offer from the entrepreneur in three or five seconds. This shot-clock seems to be a made-for-TV device, which is entertaining, but not something serious business people should do. Of course, there are business people who will use pressure tactics, but wise people avoid playing those types of games and opt, instead, to partner with thoughtful people who wish to reach mutually beneficial outcomes. 
• Some Businesses Do Not Need Early Outside Investors. A number of the businesses on Shark Tank seem to be in much too early of a stage to take on outside investors. Sometimes the sharks tell the entrepreneurs that they are seeking capital too early, but sometimes the sharks invest in businesses that do not seem to need the cash and probably shouldn’t be giving up significant equity at that early stage. Of course, it may be hard to quantify the value the sharks's connections, and simply being on national television, can bring to these young businesses.    
• Lawyers can be Useful and are Often Present in Deal-Making. In all of the episodes I have seen, never have any of the entrepreneurs or sharks brought their lawyers to the show. This might lead the naïve viewer to assume that lawyers are not necessary or even useful when taking on investment. While many (real) lawyers might not make for very good television, you can bet that lawyers are involved – in everything from the disclaimer at the start of the show, to the contracts that the entrepreneurs sign before going on to the show, to the details of the investments that are hashed out after the show. Maybe some of the entrepreneurs do not have their own lawyers, but I assume that all of the sharks do and the entrepreneurs would be wise to protect themselves and their businesses by retaining counsel.