Shark Tank: Should Entrepreneurs Steer Clear?

The reality-TV show apparently requires participants to give up equity or royalty on profits just to appear.

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NBC's Shark Tank--a reality show on which entrepreneurs pitch their business ideas to a panel of potential investors headed by Dallas Mavericks owner Mark Cuban--has brought the excitement of venture capital to prime-time television.

But not all entrepreneurs recognize what they have to give up to get on. 

To appear on Shark Tank, entrepreneurs must give Finnmax, the show's production company, either a 2% royalty on profits or a 5% equity stake in the company, Amir Kassar, founder and CEO of business loan company MultiFunding, wrote in The New York Times's small-business blog.

Recently, Kristy Hadeka and Sean Tice passed on the opportunity be on Shark Tank because of this little-known stipulation, Kassar reports. Hadeka and Tice co-own Brooklyn Slate, a company that makes homewares such as coasters and place mats out of slate.

The show offers entrepreneurs the opportunity to publicize their venture and strike deals with wealthy business owners-turned-investors, including Daymond John and Barbara Corcoran. Entrepreneurs should consider financing options, such as debt options, before accepting equity investment and entering a business partnership that's likely to last forever, Kassar writes.

Entrepreneurs interested in appearing on Shark Tank should know that deals reached during filming are not final until a formal agreement is reached later. Early in 2012, Megan Cummins successfully pitched Robert Herjavec during taping, only to have the deal fall through afterward.

 

John McDermott is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com. @J_M_McDermott