Kevin O’Leary, the entrepreneur and fund manager also known as “Mr. Wonderful” on ABC’s (DIS) “Shark Tank” dropped by Yahoo studios to talk about the show, venture investing and his favorite topic – money. For those of you who don’t know, “Shark Tank” is a reality series that features aspiring entrepreneurs making business presentations to a panel of potential investors. O’Leary sits in prime position and is known for his no-holds-barred, blunt, brutal approach as he quizzes entrepreneurs about the financial viability of their ideas.
“People find that hard sometimes, but my attitude about money is it’s binary – black and white. Either you make it or you lose it,” he explains. “So why lie to people about it, particularly if they are putting their own families’ assets in harm’s way, which is often the case on Shark Tank? I’d rather just say it’s a stupid idea; it’s going to zero; take it behind the barn and shoot it.”
O’Leary breaks down the secret to success on “Shark Tank” to these three elements:
1. Easy-to-explain ideas: The entrepreneur or team must be able to articulate their idea in 60 seconds or less, says O’Leary. A pitch must be very simple for the investor to understand. On Season 3, artist Steve Gadlin’s entire e-mail to apply for “Shark Tank” consisted of a whopping two sentences. “I draw stick-figure pictures of cats and sell them for ten bucks a piece… let me at ‘em.” He was looking for a $10,000 investment for a 25% stake in his “business.” The idea may have seemed simplistic, but Gadlin sold the sharks on the concept that he could whip out 25 customized cat drawings in an hour. He ended up with $25,000 for 33%.
2. Leadership and Teamwork: You have to be able to explain why you’re the only person or at least the right person to execute your business plan, explains O’Leary. On an episode of “Shark Tank” that aired in April, New York City firefighter Sal DePaola and his two business partners, who are also firefighters, appeared on the show to pitch their product – The Paint Brush Cover. The product prevents brushes from drying out when the painter goes on a break. The three had owned a painting business and so were able to articulate the process of inventing, producing and selling The Paint Brush Cover. They went in looking for $50,000 for a 10% stake. They walked out with a deal – $200,000 for 20% and a tie-up with QVC.
3. Numbers: “This is probably the most consistent thing that you find: [winners] knew their numbers,” explains O’Leary. “If you put all three together, you get the alchemy that gets the sharks interested in writing a check. If you miss out on any of those, we’ll throw you out in the street,” he says.
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In season 6, inventors Alice Brooks and Bettina Chen pitched a building toy for girls called “Roominate.” Both met at Stanford University and have multiple engineering degrees. The company had already received $85,000 of KickStarter funding, had $1.7 million in sales and a retail presence. They walked out with half a million dollars for a 5% equity stake.
The world of venture investing is a tough one, explains O’Leary. Of every ten deals, two fail, six end up coasting and the last two are hits – and end up providing all the returns, he says. The only exception, however, to that principle is “Shark Tank”. O’Leary says that no matter what the product or idea is, it usually ends up being somewhat successful just by virtue of being featured on the show. Tally up the millions of dollars in free advertising from being prime time, the reruns and the follow-ups and he finds 30 to 40% of outcomes are successful.
One final piece of advice? “The truth is don’t cry for money because it never cries for you,” he says.