Shark Tank Meaning: History and Background Explained

Shark Tank, the hit US-based reality TV series, has captured the attention of aspiring entrepreneurs, business enthusiasts, and casual viewers for 15 years and counting. But do you know the history and background of Shark Tank? How about why Shark Tank is named so?

In this article we’ll be taking a look at the origins of Shark Tank, its format, and some of the key reasons behind its continued popularity and success.

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What Is Shark Tank?

Shark Tank is an American reality TV show featuring entrepreneurs pitching their business ideas to a panel of wealthy investors, known as “Sharks,” in the hopes of securing an investment, typically in exchange for a stake in their company. 

The show provides a platform for these entrepreneurs to present their business models and showcase their innovative, often wacky, products, services, or other business concepts to experienced business moguls who can potentially help them take their ventures to the next level.

The on-air interactions between the Sharks and the entrepreneurs are emotional, high-stakes rides, offering audiences everything from tears to laughter, not to mention valuable business lessons and insights into how the world of venture capital negotiation works.

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When Did Shark Tank Start?

Season 1 of Shark Tank aired on August 9th, 2009, on the ABC network in the United States. But the origins of Shark Tank actually go back even further — it’s based on the format of a similar British reality show, called Dragons’ Den, which premiered in 2005.

The UK’s Dragons’ Den is itself based on an even earlier Japanese show, called Tigers of Money, that debuted in 2001. 

The success of Dragons’ Den caught the attention of Mark Burnett, best known for producing hit American reality shows like Survivor and The Apprentice, who executive produces Shark Tank.

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What Is the Meaning of “Shark Tank”?

The term “Shark Tank” metaphorically represents a high-pressure environment where aspiring entrepreneurs must put everything on the line to defend their business ideas against scrutiny and tough questioning from the Sharks who inhabit the tank.

The Sharks are seasoned investors with significant business experience, and they are not afraid to ask tough, to-the-point questions to determine the viability of the entrepreneurs' proposals — if there’s a weakness in an entrepreneur's business idea, they’ll find it, and they certainly won’t hesitate to point it out!

Shark Tank’s meaning reflects the competitive nature of the show, where only the strongest and most convincing pitches survive the rigorous evaluation process. The rest get chewed up and spit out by the Sharks, walking away without an investment, only to become another name on the long list of Shark Tank failures (usually).

Shark Tank is also named so because of the past shows it was based on, which both featured a powerful animal (tiger and dragon) in their name.

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Why Are Investors Called Sharks?

The investors on Shark Tank are referred to as “Sharks” because they are perceived as aggressive, savvy, and relentless in their pursuit of profitable investment opportunities. 

Like sharks in the ocean on the lookout for their next meal, these investors are always on the prowl for the next big deal, ready to chomp down on promising ventures while quickly dismissing those that do not meet their high standards. 

The term “Shark” underscores the formidable nature of these investors and their reputation for making sharp, calculated decisions in the business world — like a great white shark hunting down its next prey.

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How Does Shark Tank Work?

Every episode of Shark Tank follows a structured format, with the episode’s cast of Sharks sitting at the head of a presentation room (the Shark Tank) into which the show’s contestants enter and pitch their business ideas.

Entrepreneurs competing on Shark Tank, meaning to leave the show with a juicy deal, are free to present their pitches however they’d like, including providing live demonstrations of their products or services and even getting the Sharks themselves to test products out.

The show revolves around these action-packed pitches, the Sharks’ dramatic reactions to them, and the nail-biting negotiations that (sometimes) follow.

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What Is the Investment Process in Shark Tank?

Pitching: How Does Pitching Work on Shark Tank?

As mentioned above, the pitching process is the main draw of Shark Tank, and it’s also the first and most crucial step for entrepreneurs looking to secure an investment deal on Shark Tank. During the pitch, each contestant is given a limited amount of time to present their business idea, including a demonstration or sampling, an explanation of their business model, and information about any existing revenue and financial projections.

As with any startup business pitch, the end goal is to capture the interest of the investors and persuade them to pledge funds in exchange for equity (and occasionally stock options or other benefits). The entrepreneurs usually come ready with an “ask,” or a specific dollar amount of money they are seeking and the percentage of equity they are willing to give for it.

After the initial pitch, the Sharks ask the business owners probing questions to assess the viability of the business and the entrepreneur's ability to execute their plan — they don’t hold back at all here. 

The Sharks’ questions cover important aspects of the pitch, such as technology, market size, competition, revenue streams, and the entrepreneur's background and experience. 

Assuming the pitch doesn’t fall apart during this questioning, as it often does, and one or more of the investors wants to make a deal, the pitch then goes into a negotiation phase, in which the Sharks may make counter offers or propose terms different to the entrepreneur’s initial ask.

Due Diligence Process

If a pitch results in a deal on the show, it’s what’s known as a “handshake deal,” or a verbal, non-binding agreement. Before formally finalizing any deal, the Sharks conduct a thorough due diligence process. 

Due diligence is a vetting process that involves a thorough examination of the entrepreneur's business, including its financial records, legal considerations, and operational aspects. The purpose of due diligence is to verify the claims made during the pitch and ensure that the business is actually a sound investment.

The due diligence process can sometimes reveal issues or discrepancies that were not apparent during the pitch, leading to deals falling through off air. However, it also provides an opportunity for the Sharks to gain a deeper understanding of the business and for entrepreneurs to solidify their relationship with their new investors.

In some cases, a deal may not fall through because of due diligence, but the terms of the deal might instead change due to new information that comes to light. 

At any point during this process, either the Sharks or the entrepreneurs they’re dealing with can choose to walk away without finalizing a deal.

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Finalizing Deals

Once due diligence is successfully completed and both parties have agreed to continue with the deal, the deal is finalized. This involves drafting and signing legal agreements that outline the terms of the investment, including the amount of funding, the equity stake the Shark will receive, and any other conditions or commitments agreed upon during the negotiation.

Finalizing deals can take several weeks or even months, depending on the complexity of the business and the terms of the investment. Once finalized, the entrepreneur receives the funding, and the Shark becomes an official investor and partner in the business.

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Do the Sharks Use Their Own Money?

The Sharks use their own money when making investments on Shark Tank, although some of them invest money from private investment firms or venture capital funds they manage.

Each Shark is a successful entrepreneur or business person with substantial personal wealth, and they commit either their own personal funds or funds from companies they lead to the companies they agree to partner with. 

This personal investment adds a level of authenticity and accountability to the show, as the Sharks have a genuine stake in the success of the businesses they invest in — it’s not JUST for entertainment’s sake.

The use of the Sharks’ personal money also means that they are highly selective and strategic about the deals they pursue. The investors are on the lookout for real opportunities that align with their expertise, interests, and investment goals, ensuring that their involvement can add significant value to the entrepreneur's business.

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Do Sharks Actually Make Money on Shark Tank?

Many Sharks have successfully made large amounts of money from their investments on Shark Tank. 

Over the years, more than a few businesses that received funding from the Sharks have gone on to achieve substantial growth and profitability, becoming successful Shark Tank products and providing lucrative returns for their investors.

Some of the most notable success stories include companies like Scrub Daddy, Bombas, and Tipsy Elves, which have generated millions in revenue and become household names.

However, not all investments yield positive returns. Like any venture capital investment, there is always a risk involved, and some businesses fail to achieve the expected results. 

The Sharks are aware of these risks and make their investment decisions based on careful evaluation and their experience in the business world, knowing full well that not every bet is going to be a winning one.

Why Do Entrepreneurs Decide to Go on the Show?

Entrepreneurs ostensibly choose to appear on "Shark Tank" for one main reason: to secure funding that will help them continue growing their business. In reality, there are several reasons, including exposure, funding, and mentorship.

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Exposure

One of the primary benefits of appearing on Shark Tank is the exposure it provides — regardless of whether a brand secures an investment or not.

The show has a large and dedicated viewership, which can translate into increased brand recognition and customer interest for the businesses featured  (it’s like a free TV commercial with a much wider reach).

Many entrepreneurs experience a significant boost in sales and website traffic after their episode airs, which is a phenomenon known as the “Shark Tank effect.”

The exposure also extends beyond the initial airing of the episode, since Shark Tank episodes are frequently re-aired, and clips get shared on social media and other platforms, providing ongoing visibility for the businesses featured on the show.

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Funding

Of course, securing funding is the main motivator for most entrepreneurs who appear on Shark Tank. 

When a Shark offers a deal, they pledge a substantial financial investment, usually in the hundreds of thousands of dollars. Such a hefty sum can provide the capital needed to scale operations, develop new products, or expand marketing efforts. 

For many entrepreneurs, this funding can make or break their fledgling businesses, enabling them to achieve growth and success that would be difficult to attain otherwise.

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Mentorship

In addition to funding, Sharks can provide another invaluable asset for entrepreneurs: mentorship.

All of the Sharks have extensive experience with startup business ventures and a broad depth of knowledge in various industries. They offer insights and advice that can help entrepreneurs refine their business strategies, avoid common pitfalls, and accelerate their growth.

This mentorship aspect of Shark Tank is another key reason why many entrepreneurs choose to pitch their businesses on the show. The prospect of getting a chance to work with and learn from some of the sharpest business minds in the world is truly a once in a lifetime opportunity!

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Wrapping Up

Shark Tank has undoubtedly inspired many entrepreneurs to chase after their dreams, and has provided millions of viewers at home with a fascinating glimpse into the world of startup businesses and venture capital investments. 

The show's format, featuring high-stakes pitches, rigorous evaluations, and the dynamic interactions between entrepreneurs and Sharks, offers both entertainment and education.

Understanding the history and background of Shark Tank helps viewers appreciate the challenges faced by the entrepreneurs who brave the tank, not to mention the significance of the opportunity. 

Whether they secure a deal or not, the exposure, feedback, and experience gained from appearing on Shark Tank can be transformative for the businesses that get a shot at pitching their products on the show (just ask rejected companies like Ring, The Lip Bar, Kodiak Cakes, and Copa De Vino).