Shark Tank: A Thought

I enjoy the television show SHARK TANK and for my birthday's blog post I'll indulge myself in a simple comment thereon.

The rules of the 'tank' provide that the entrepreneurs must get at least the amount of cash they ask for. When they come in and make their pitch, they may ask for, say, $100,000. If they do, then they may accept an offer from one of the sharks for that amount, or (if they're fortunate enough that the sharks end up bidding against one another) for more than that. But they cannot lower their offer to, say, $75,000. They either get their $100,000 or they leave empty handed.

This may seem unrealistic. Why can the entrepreneurs not adjust to unexpected skepticism by lowering their own expectations on the fly?

In a sense, though, they can: and the way in which they can do so is by lowering their implicit company valuation.

When an entrepreneur walks into the "tank" to make his pitch, he might indeed ask for $100,000. But he'll also be specific about the amount of equity in his business that will buy, implicitly valuing the whole entity in the process.

For example, he will say that he is offering the $100,000 in return for 10% of his company's equity. That values the company at $1 million. Any increase in the equity figure is a lowering of expectations. So, he might respond to unexpected skepticism by acknowledging that the $100,000 will buy a shark 20%, or 25%, instead of the originally contemplated 10%. That would change the valuation for the whole to $500,000 or $400,0000, respectively. Lowering his expectations on the fly is perfectly possible and happens on every program.

And this is quite realistic as to how the private equity market interacts with entrepreneurs.

Comments

A Story About Coleridge

This is a quote from a memoir by Dorothy Wordsworth, reflecting on a trip she took with two famous poets, her brother, William Wordsworth, and their similarly gifted companion, Samuel Taylor Coleridge. We sat upon a bench, placed for the sake of one of these views, whence we looked down upon the waterfall, and over the open country ... A lady and gentleman, more expeditious tourists than ourselves, came to the spot; they left us at the seat, and we found them again at another station above the Falls. Coleridge, who is always good-natured enough to enter into conversation with anybody whom he meets in his way, began to talk with the gentleman, who observed that it was a majestic waterfall. Coleridge was delighted with the accuracy of the epithet, particularly as he had been settling in his own mind the precise meaning of the words grand, majestic, sublime, etc., and had discussed the subject with William at some length the day before. “Yes, sir,” says Coleridge, “it is a majesti

Searle: The Chinese Room

John Searle has become the object of accusations of improper conduct. These accusations even have some people in the world of academic philosophy saying that instructors in that world should try to avoid teaching Searle's views. That is an odd contention, and has given rise to heated exchanges in certain corners of the blogosphere. At Leiter Reports, I encountered a comment from someone describing himself as "grad student drop out." GSDO said: " This is a side question (and not at all an attempt to answer the question BL posed): How important is John Searle's work? Are people still working on speech act theory or is that just another dead end in the history of 20th century philosophy? My impression is that his reputation is somewhat inflated from all of his speaking engagements and NYRoB reviews. The Chinese room argument is a classic, but is there much more to his work than that?" I took it upon myself to answer that on LR. But here I'll tak

Five Lessons from the Allegory of the Cave

Please correct me if there are others. But it seems to be there are five lessons the reader is meant to draw from the story about the cave. First, Plato is working to devalue what we would call empiricism. He is saying that keeping track of the shadows on the cave wall, trying to make sense of what you see there, will NOT get you to wisdom. Second, Plato is contending that reality comes in levels. The shadows on the wall are illusions. The solid objects being passed around behind my back are more real than their shadows are. BUT … the world outside the the cave is more real than that — and the sun by which that world is illuminated is the top of the hierarchy. So there isn’t a binary choice of real/unreal. There are levels. Third, he equates realness with knowability. I only have opinions about the shadows. Could I turn around, I could have at least the glimmerings of knowledge. Could I get outside the cave, I would really Know. Fourth, the parable assigns a task to philosophers

Jamesian Philosophy Refreshed

Search This Blog