The companies that appear on Shark Tank do so for a price: 5 percent of their business or a 2 percent royalty. That money goes to the shows producers and ABC, and does not depend upon whether or not there’s a deal made.
That’s one of the fascinating revelations in a New York Times article about the impact the show has on businesses, which is generally pretty great, thanks to the power of broadcast television. Thus, the paper reports,
“producers are well aware of the value that seven million viewers, and potential customers, can bring to an early-stage business. It is the reason participants are willing to sign over a small equity share just to appear on the show. The standard appearance contract entitles the show’s producers and ABC to 5 percent of the company or 2 percent of future royalties, regardless of whether a deal materializes with a shark. The show’s producers declined to comment on the contract.”
The piece cites two examples of companies that benefitted from the exposure (VerbalizeIt, Wicked Good Cupcakes), which can sometimes mean not sticking with the deal made on the show.
Last year, I reported that 33 to 50 percent of deals fall apart during due diligence, which one Shark said is pretty much like real-world investing. And so, I suppose, is paying for advertising and exposure on a huge scale.