Shark Tank India had all of us glued to our TV screens for the drama and new-age entrepreneurs who amazed us with brilliant ideas. For the uninitiated, Shark Tank is a show where 'aspiring entrepreneurs pitch their business models to a panel of investors and persuade them to invest money in their idea'.
The show also introduced us to the panel of sharks who are some of the most successful businessmen and women in the country.
The show also consists of a lot of jargon that some of us might not have heard before. For example, before I watched the show, I had some trouble understanding how a company is evaluated. But things are not the same anymore.
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So, let's talk about how a business is valued on Shark Tank.
You must have heard terms like - Equity Share, Valuation, Ask, Offer, etc. But what do these terms mean? Let's find out.
Equity Share
Equity shares are the percentage of a company that an investor or person owns. This means the investor will be the owner of that much portion of the company. So, if an investor's equity shares are 10 percent, they own 10 percent of the company.
Valuation
A company's valuation is the total value of a company after a round of fundraising is closed based on the amount raised against the equity shares. So, if a company sells its 10 percent equity for Rs 1 lakh, then its 100 percent would be marked Rs 10 lakhs. So, this simply means that the company's total valuation becomes 10 lakhs.
Ask
The ask is the offer that entrepreneurs look for their company in their pitch. They ask for a specific amount of money for certain equity to value their company to a certain valuation after this round of fundraising.
Offer / Counter Offer
Offer and counter offer are the negotiations done by Sharks who are investors and entrepreneurs after the ask by entrepreneurs. The counter offers come into place if the investors believe that the company's evaluation should be less than the asked amount or the entrepreneurs think that the valuation should be more than the offer given by sharks.
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Other than the sharks investing in the companies, the entrepreneurs also get access totheir network of contacts, their suppliers, and their experience. Also, the companies on Shark Tank are not publicly traded which means that they don't have equity shares or published earnings multiples for investors to consider.
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