‘Shark Tank’: Daymond John Reveals Why Sharks Pass on a Pitch
Though FUBU founder Daymond John often partners with entrepreneurs on Shark Tank, there are many opportunities where he opts to utter those infamous two words, “I’m out”. The fashion mogul shared some reasons on why a business owner may not receive an investment from a Shark even if their product seems too good to pass up.
If Shark doesn’t swim in those particular waters…
Longtime viewers of Shark Tank are familiar with the panel’s ultimate rule: Know thy numbers. Entrepreneurs often come in with a valuation that is more of a wish than proof of sales. John counts this mistake as a top reason for Sharks to drop out of bidding.
“You’ve provided an unrealistic valuation,” John listed on his website’s blog. “Nothing gets us Sharks more turned off to a pitch than hearing a valuation that’s based on where your company might be in a few years when you’re asking for the money now.”
Another reason Sharks may decide against partnering with an entrepreneur is that the business is not in their area of expertise. While each investor on the panel carries a wealth of knowledge in a wide range of industries, sometimes a certain type of company just isn’t the right fit.
“We aren’t the right partner for you,” John remarked as another possibility. “If we don’t have experience or proven success in the areas in which you need our help, we know to step back and stay out of your way – trust me, you’re better off without us!”
Some entrepreneurs pitch too soon on ‘Shark Tank’
John also noted that some business owners dive into the Tank before they have built up enough knowledge and experience within their chosen field.
“You’re too early in the company,” the FUBU owner commented. “If you haven’t made the mistakes that every entrepreneur inevitably faces, then you’ll end up using an investment to pay for those mistakes once you make them. Plus, you don’t want to give up equity in your company while you’re still figuring it out – the last thing you want is an investor who doesn’t share the same passion as you for your business telling you what to do.”
When entrepreneurs pitch a product without necessary data to back up its claims, the Sharks tend to swim away from a deal due to liability issues.
“There isn’t proof of efficacy,” John wrote. “For products that relate to performance, health, etc., not having proof of efficacy from clinical trials and approval from all necessary agencies and regulators puts an investor at legal risk.”
Sharks need to be offered what they’re worth
John also stated that many times, a Shark will already be vested in a similar type of company or product and partnering with a potential competitor would be a conflict of interest. Lastly, some business owners entering the Tank make the mistake of pitching the Sharks an equity stake at the same amount they’ve offered other investors. Each panelist on Shark Tank expects to be valued for what they exclusively bring to a deal.
“This last point is really just about the Sharks, but if you come into the Tank offering us the same equity option and valuation that you offer to investors in a financing round, it shows that you don’t value us as anything more than a straight investor,” John said. “We want to know that you’re coming into the Tank for the unique perspective and opportunities we can bring to the table for your business.”
Watch ABC’s Shark Tank on Friday nights.