Is Shark Tank entertaining? Absolutely. Does it demonstrate the reality of raising venture capital? Absolutely not.
I’m part of a founding team that’s raised approximately $23 million dollars in venture capital to date and when I have conversations with many people that haven’t taken part in raising venture capital, Shark Tank usually makes it’s way into our conversation. I get it. Prior to Stitch Labs I had no idea about how venture capital worked, but on a late summer day in 2011, I learned very quickly when my business partner and I got bounced from our first pitch meeting. Getting our first no was the beginning of a learning process we never expected.
A few truths about raising venture capital make their way into Shark Tank and maybe saying it’s fake isn’t totally fair. The show is meant to entertain people and it does that well. It may be more fair to say It’s an extremely exaggerated and compressed version of what actually happens.
The process of raising venture capital is much longer than a five minute pitch to a group of VCs/TV personalities. The process can take months to accomplish and if the entrepreneur is fortunate enough to get the first yes, the pitch is just the beginning. Many times it takes numerous meetings and pitches to multiple people in the firm. And even before the opportunity arises to pitch, the entrepreneur needs to find the VC that’s the right fit. There are thousands of venture capitalists out there with large amounts of cash to spend, but typically only a few align with the stage, business needs and goals of both companies.
We were so new to the process when we started, we didn’t do a great job of finding the right fit vs. looking for someone to help fund our venture. Also, because we didn’t have a huge network in Silicon Valley we were originally willing talk to anyone interested in our business. Those two circumstances led to early frustrations, many no thank you calls and us wondering what direction we should go.
After a few months of trying to find capital, we found, through our own personal network, what would later become our first venture capital partners, True Ventures. The key take away here is that we found them through our personal network. We had a warm introduction to them from someone that knew us, them and both our businesses well enough to believe it would be a good fit. Looking back, we might have worked harder to leverage personal relationships and people with an intimate connection to us rather than a shotgun approach we originally tried. Even though many of our first meetings came through warm introductions, very few were from people that knew us and our business more personally. Lesson learned.
From the first introduction to True, through the time we had money in the bank, everything felt right. They are an outstanding early-stage investor with deep expertise in helping very early companies become successful. They’ve funded companies like Fitbit, Automattic (WordPress) and littleBits. We had several meetings with multiple people in their organization. Through each meeting we felt more confident they were the right firm for us. Once they felt the same way, we decided to enter into what has now become a four-year relationship.
Interestingly enough, four years isn’t very long in the grand scheme. We both planned on this partnership being long term. If you’re not ready to commit to a venture capitalist for many years, it’s not the right fit. They are going to be with you and helping you grow for many years to come. I would say this is one of the biggest gaps in what people see or don’t see on Shark Tank. The process of selecting a VC and having them bet on you is more than a five minute process. Just because you’ve seen someone on TV, doesn’t mean you’re going to want to spend the next ten years of your life going through ups and downs with them. The decision must be made very carefully on both sides of the relationship. Also, I’m sure there is more going on behind the scenes of Shark Tank from a vetting perspective. We just don’t see the “boring stuff.”
This is only a short snippet of what raising venture capital is all about. I’m only scratching the surface of the topic and sharing very little about the huge respect I have for our venture partners. They’ve been amazing. More to come in future posts.
In the past five years I’ve gotten an education in so many new subjects, I have material for a lifetime. I’d be happy to answer any questions I can about our experience to date. Feel free to leave me a comment and I’ll give you the low down about the differences in the real venture capital game vs. what you see when Mark Cuban goes under the lights on Friday nights. 🙂
2 thoughts on “Shark Tank is Fake”
Jake – great article thanks for sharing! What are your thoughts/recommendations of crowd funding vs. partnering with a VC in early stages?
Thanks for your question, Justin. My answer depends on what your goals are. If you’re looking for cash only, crowd funding may be the way to go. If you’re looking for funding and a partner to help guide you through the rough waters of a start up, having VCs with experience is a great way to accomplish that goal.
For us, it was our first time in the software start up space and only one of my partners had any experience running an entrepreneurial enterprise. We not only wanted to go faster with an infusion of capital, but wanted to go faster with the guidance and network a well-connected venture capital firm could provide. True and our subsequent investors at Costanoa and Triangle Peak have been outstanding sounding boards for ideas and also have put us in touch with the right people when they thought it would be helpful to get another perspective.