There’s been some online discussion about the Sharks not following thru on verbal offers made while taping the Shark Tank TV Show. I am aware of several such deals……Shark Daymond’s offer to invest in Gary Gagnon’s REMYXX (mutually agreed not to do the deal), Shark Robert Herjavec’s offer to finance Megan Cummins’ YOU SMELL (second thoughts?) , and several others that were delayed for further negotiation.
Some Shark Tank viewers are outraged by this…….but they shouldn’t be.
In many respects the Shark Tank mirrors the real world of investing. The normal process of securing an investment in an entrepreneurial company starts with an initial presentation and a series of follow-up calls/emails. The investor or acquirer then submits a non-binding Letter of Intent (LOI) outlining the amount of the investment, basic terms, timing, etc. After negotiating the LOI, weeks or months of due diligence takes place. A final binding agreement is then signed by both parties.
I was once told by a respected investment banker that 50% of all deals that make it past the LOI never get consummated (for any number of reasons). Based on my experience, I think the actual percentage may be lower than that.
The Shark Tank deals are non-binding verbal offers. This puts them a notch below LOI’s in terms of probability of actually happening. I believe the Sharks are consummating at least 50% of their on-air deals, so I don’t see a problem here…..just what I would expect from any group of investors.
Paraphrasing Yogi Berra…….”A Shark’s verbal offer isn’t worth the paper it’s written on”.
