Friday Night Video: Mark Cuban, Humanitarian
By David Henderson
This isn’t the usual Friday night video. Rather, it’s a mention of an ABC-TV show that my wife and I watch every Friday night. It’s called “Shark Tank.” I highly recommend it. It’s the highlight of our Friday evening.
Five investors who are ultra-wealthy–and Mark Cuban is the most well-known–watch various small entrepreneurs present their ideas and the five ask tough questions: what’s your cost per unit, what’s your retail price, how do you sell–on the web or through retailers–what was your sales revenue last year, if it’s an invention, do you have a patent, etc.? One or some of the five often end up funding a start-up. Of course, their goal is to make money, as one of the investors, Mr. Wonderful, always reminds the TV audience and the budding entrepreneurs. But they understand that the way to make money is to produce something people are willing to pay for. When the deal goes through, both sides win.
I have one small objection: they’re not sharks, not just in a literal sense (duh), but also in the figurative sense. They’re helping these people by helping themselves.
One particularly interesting segment happened last week. A father and his two sweet teenage daughters wanted $30K for a 25% stake in their business. That’s the lowest implicit valuation of a firm I’ve ever seen on Shark Tank. All of the sharks liked the idea but not enough to fund it. So the three started to leave, with the younger daughter holding back tears, when Mark Cuban said, “Wait, come back. I just can’t let you leave.” He pointed out that someone had helped him early in life and he wanted to do the same for them, so he would offer what they asked. Then, surprisingly, one of the other sharks, Lori Grenier, offered them $30K for 50%–on its face, not as good a deal at all. But what she would bring to the table was her knowhow for this particular consumer product. After huddling for a few seconds, the father/daughters combo thanked Mark but accepted Lori’s offer. It was very moving.
This whole show is a beautiful illustration of free markets in action. As my friend, Ross Levatter, has pointed out, there’s not much cronyism. The sharks aren’t looking for people who are politically connected and, to the extent they think about politics, it’s their worry about liability suits for risky products.
One other bonus for the participants: even those who don’t get funded–and that happens a lot–get exposure. Sometimes “Shark Tank” does updates that look at how some of them have fared and occasionally they have done very well.