Shark Tank is arguably the most popular reality TV shows in America focused exclusively on entrepreneurship. It lets entrepreneurs pitch their innovative entrepreneurial projects and products to a panel of successful businessmen and investors with the goal of securing an investment deal - usually equity in the business (average ~23% in season 10) in exchange for funding (average $286k).
Because of this, it’s very curious to see how well the businesses featured on the show are doing.
In this article, we’ll investigate some of Shark Tank’s biggest failures: businesses that failed to capitalize on the huge opportunity of being featured on the show, and some of the biggest missed investment opportunities from the sharks.
Before we start, however, here are a couple of important things to consider:
Great business doesn’t necessarily mean great TV.
The show mostly deals with interesting direct to consumer mass-market products with the potential to appeal to a general audience. After all, the goal of the show is to maximize TV ratings, rather than the investment portfolio success of the sharks.
Participant businesses don’t necessarily chase the investment.
Getting exposed to more than 5 million viewers on national television for free is a great promotional opportunity regardless if your business requires funding or not.
A great example is Xeroshoes who turned down an offer to sell 50% of their equity to the sharks, which turned out to be the right decision because after the show their sales steadily rose to $2.5 million annually within a year.
Although this success doesn’t happen to every company (some participants say they’ve noticed only a slight, temporary increase in sales), it’s not that rare. Megan Cummins, owner of You Smell Soap, shares in an interview:
“Word of mouth has been phenomenal. Ever since the show, there has been a steady stream of orders. Major chains called up saying their stores were reporting lots of requests for us, Countless boutiques opened wholesale accounts, magazines started calling, blogs started posting - it was entirely worth it. It was the best investment I’ve ever made into the company. That amount of advertising would be nearly a $250k.”
Shark Tank Failure Rates
Those of you familiar with the startup world know that startup failure rates are abysmal - 2019 figures show approximately 11 out of 12 true startups fail (although failure rates are lower for non-innovative new businesses).
The failure rates of Shark Tank participants, however, are significantly lower. In the last few seasons (5 to 9), only 6% of the participants are out of business, and only 20% aren’t making a profit (but are still operating).
Sourcing prices: it was hard to source the toys affordably. They were hoping for their newfound investors to help them with contacts at Mattel, but nothing came out of it.
Shipping costs: the toys had very different dimensions, so shipping costs would get out of hand. This was a problem because they were running a “free shipping” model. They wanted to get out of it to deal with the problem, but their newfound investors were against it.
“Like most SharkTank appearances, we got a spike when the show aired. Which was not what we needed as a sudden influx into a business that depends on stock is not a good thing!”
According to Phil, the business would have been much better off growing slowly and organically, as this would have given them more time to deal with some of the sourcing and shipping problems we mentioned above. This, combined with the lack of consensus about the shipping issue, brought Phil to the opinion that the participation in Shark Tank was actually detrimental for the business.
All in all, ToyGaroo is a great illustration that Shark Tank is not always a home-run for the participants. The free publicity could come at the wrong time when the business cannot make good use of it, and the relationship with the investors could turn sour.
What was ShowNo Towels: A towel shaped like a poncho (with an opening in the middle of the towel for the head)
ShowNo Towels’ founder: Shelly Ehler
ShowNo Towels at Shark Tank: Season 3, Episode 4
Investment: Raised $75k for 25% equity from Lori Greiner (which didn’t materialize in this way)
Why did ShowNo Towels fail?
Right from the start, the relationship between Shelly Ehler and Lori Greiner also took a hit. According to Shelly, Greiner warned her not to cash the check on the next day and later on tried to change the terms of the deal (asked for 70% of the company instead of 25%, and when Shelly Ehler refused, Greiner changed the deal to a loan that could be used only for sales rather than other expenses).
"[My] Shark Tank deal [with Lori Greiner] turned to crap. I once cursed my 'Shark Partner' for kicking me to the curb. But now I thank her. She taught me so much more than she thought she did and none of it was about business," – a quote from Shelly’s blog post, which is currently taken offline.
Moreover, the company had a lot resting on one big deal with Disney. After not impressive-enough sales of the product online, and a profit margin insufficient to meet Disney’s expectations, the deal fell apart after many months of trying to move it forward. Another deal that fell apart was a royalty deal with Franco Manufacturing. The failure of both deals and the tension between the founder and investor lead to the dissolution of the business.
Three years after shutting down ShowNo Towels, Shelly Ehler is back in business. She restarted the website and is currently focusing on selling the towels mainly to people with disabilities - a market Lori Greiner didn’t deem large enough to pursue.
What was Sweet Ballz: Maker of cake balls retailing at convenience stores
Sweet Ballz’sfounders: James McDonald and Cole Egger
Investment: Raised $250k for 25% equity from Mark Cuban and Barbara Corcoran
Why did Sweet Ballz fail?
The story of Sweet Ballz is a classic story of two founders falling out. James McDonald and Cole Egger got into a lawsuit shortly after the Shark Tank deal was struck. McDonald was suing his partner because he believed he was developing a competing product behind his back - Egger started operating the competing Cake Ballz brand. Things between the two partners went far enough for a restraining order to be issued.
The problem was that the conflict between the founders took place closely after the Shark Tank episode featuring the product was aired, which resulted in a big missed opportunity for the business. The site was offline and the Sweet Ballz domain even redirected to the Cake Ballz website for a short while.
After the completion of the lawsuit, the Sweet Ballz website is back in the ownership of James McDonald who was the original creator of the Sweet Ballz brand and product. With the missed Shark Tank opportunity and the dying out of the cake balls fad, however, the business is not doing great and McDonald only runs it as a side gig.
What was Body Jac: A fitness machine designed to make push-ups easier for out-of-shape people
Body Jac’s founder: Cactus Jack Barringer
Body Jac at Shark Tank: Season 1, Episode 5
Investment: Raised $180k for 50% equity from Kevin Harrington and Barbara Corcoran
Why did Body Jac fail?
In the show, Barbara Corcoran told Jack Barringer that to finalize the investment deal, he had to lose 30 pounds to prove the machine worked. He did so and the deal went through, however, the business didn’t reach any success afterward. The website selling the product was discontinued in 2012 and Corcoran mentioned in interviews that investing in this company was the “worst business deal she had ever made”. There isn’t any public info available for the exact reasons behind the failure of the business.
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What was CATEapp: A privacy app that hides calls and messages from selected contacts (i.e. a messaging app for cheating)
Investment: Raised $70,000 for 35% equity from Kevin O'Leary and Daymond John
Why did CATEapp fail?
After the episode aired, the CATEapp had 10k new downloads (most new customers being women). Since the privacy functionality of the app could also work for government and law enforcement, Neal perused those markets. However, it seems the app didn’t become popular enough because it went offline and the last post from its social media accounts was in 2013.
What was Breathometer: A portable device working with a smartphone app that measures blood alcohol levels (a portable Breathalyzer)
Investment: Raised $1m for 30% equity from Kevin O'Leary, Mark Cuban, Daymond John, Lori Greiner, Robert Herjavec
Why did Breathometer fail?
The idea sounded great – obvious from the fact that all five sharks wanted in on the action and invested together. However, the business ran into a lot of problems after the deal. They had trouble fulfilling all the orders they were receiving, and after a short while it turned out the device didn’t work as advertised. The results the device was giving were not accurate and occasionally it reported a blood alcohol level far below the actual value. This is a big problem because it could encourage people to drive when they are in fact in no condition to do so. The Federal Trade Commission got involved and ordered Breathometer to make full refunds to all of its customers (and take the product off the market).
Mark Cuban called it the “worst execution in the history of Shark Tank” and blamed the founder for miss-spending the capital.
Despite this being a significant failure, the company is still alive (albeit its unknown if the sharks are still in on it). It is currently pivoting and advertising a new (yet similar) product – Mint, which is supposed to measure biomarkers associated with bad breath and gum disease. The company has a partnership with Philips in the area of oral hygiene.
You Smell Soap
What was You Smell Soap: A luxury soap brand
You Smell Soap’s founder: Megan Cummins
You Smell Soap at Shark Tank: Season 3, Episode 3,
Investment: Raised $55k investment + $50k salary for 30% equity from Robert Herjavec (deal never materialized)
Why did You Smell Soap fail?
After the on-air handshake deal, Megan Cummins tried to reach Robert Herjavec unsuccessfully for 6 months. Eventually, after doing his due diligence, he came back with an adjusted offer of $50,000 for 50% of the company, which Megan refused.
As witnessed from the Show No Towel deal, the change of heart on the side of the sharks is not a rare occurrence. Of course, they are in the right to change their offer after doing their due diligence, but the delay of 6 months with very little communication before making a decision and committing is a huge problem in itself. A quick “no” is preferable to a delayed “maybe” for a new business in desperate need of funding struggling to satisfy rising demand because of a recent appearance on national TV.
Megan continued running the business with another investor, who eventually bought the whole You Smell Soap company. Shortly after the purchase, however, the business closed doors. We are left to wonder if the story would have had a different trajectory if Herjavec had acted in a different (and more hasty) manner.
Biggest Missed Opportunity by the Sharks:
Of course, from the viewpoint of the sharks, failure doesn’t only mean investments that go bad. It also means missed opportunities that do great. Such deals could be equally painful.
And no company illustrates this better thank DoorBot (currently Ring), which was recently bought by Amazon for more than one billion dollars. To put this in perspective, this is higher than the total valuation of all companies in which the sharks invested in 10 seasons.
If a shark had taken up the $700k for a 10% equity offer, they would have capitalized between $120 and $180 million when Amazon purchased Ring.
Kevin O’Leary made an offer for $700k, but instead of 10% equity, he wanted 5% equity in addition to 10% royalty that would drop down to 7% after he recovers back his $700k. The royalty was the deal breaker for Siminoff, who mentioned that he wants to upscale the product and the royalty would mean the company would be bleeding cash when it most needs it.
Of course, it turned out Jamie did the right decision. The company made $5 million in sales after the episode of Shark Tank aired, and eventually, it raised over $200m of capital first from Shaquille O’Neal and later on from venture capital companies like Kleiner Perkins Caufield Bayers, Qualcomm Ventures, Goldman Sachs, DFJ Growth, and even Sir Richard Branson. This allowed the company to expand its product range and eventually make the deal with Amazon.
O’Leary’s ask for royalties, when you draw the line, lost him at least $120 million.
Interesting S01-S10 Shark Tank Stats:
Total Pitches: 895
Total Deals: 499 (56% of contestants make a deal, 68% in season 10)
Total invested capital: $143.8m
Average deal amount: $286k
Average equity sold: 27% (the investment amount is rising, while the equity is falling with newer seasons)
The most common industries are food & beverage and fashion & beauty, but home & lifestyle are on the rise in later seasons.
The most active investor is Mark Cuban with 151 deals and $33.6m invested. This amounts to the lowest percentage out of his total net worth, however, at 1%.
With Shark Tank company failure rates as low as 6%, it’s a surprise the sharks don’t try to invest in every deal that comes their way and that they try to aggressively push the terms even after the cameras are off, which leads to many deals falling apart.
Maybe this realization is the reason why the last seasons are seeing more successful deals (68% (!) in season 10, compared to below 50% in early seasons) and much better conditions for the founders (average equity of 27%, which is still very high for the startup world, compared to close to 50% in the early seasons).
Simply investing in every deal that comes their way would have made the sharks richer than they are today (e.g. the DoorBot deal would have more than made up for the cost of all the unsuccessful investments). Investing in every deal, however, might not be the best decision for making the show more interesting and keeping its ratings high.