“Sharks are called sharks because they're expected to take decisions and act quickly so that the 'fish' (the pitcher) has no time to react. If they say ‘no, it takes time,’ then they shouldn’t be called sharks — they should be called dolphins, instead.” That’s Ashneer Grover, the contentious BharatPe founder who was a controversial shark on Shark Tank India’s first season.
Grover's outburst comes amid simmering differences between sharks (judges) on the show and the founders who have bagged deals, over issues surrounding delays in deal closure, changing terms, and renegotiation of valuation.
For instance, Rahul, a founder on season two, secured a deal from Anupam Mittal, one of the Sharks on the show and the founder of Shaadi.com. Sharks invest in the product being pitched, if it appeals to them.
Cut to 10 months later, Rahul tells Moneycontrol that there have been fundamental disagreements over what was earlier agreed upon (with Mittal), and he’s even been told that his business is not viable.
This isn’t Rahul’s story alone. Many founders have said that the sharks reassess the deal (based on the online traffic the episode draws, audience response, etc.) after offering it, and have even gone on to ditch the founders subsequently.
Even as the show is gearing up for season three, fissures have developed between sharks and founders, who say that the actions of the former have brought their businesses on the verge of a shutdown.
Mittal told Moneycontrol that sharks fund those founders on the show who would otherwise struggle to raise capital outside, and that they democratise entrepreneurship. Drawing parallels with Shark Tank US, Mittal says that after 13 years on air, only about 60 percent of the deals committed to on the show finally fructify. He claimed that Shark Tank India season one saw the completion of over 70 percent of the deals that were committed to.
Season two was filmed between August and November 2022, and aired between January and March in 2023. Apparently, the needle hasn’t moved even on deals where there was significant online interest after the episode was aired. Most deals are still in process, and 12 founders told Moneycontrol that none of them have received their funds yet.
Mittal said that to “get an accurate picture of (the) completed-deal-to-hand-shake (CDH) ratio, one has to take stock six months after the end of the season.” That would be August 2023.
“Given that it has only been three months since the end of season two, directionally the CDH looks good and we should end up with 60-70 percent closures, at least as far as my commitments are concerned,” he explained. He went on to add that a deal on Shark Tank typically takes a year to close.
Grover scoffs at this and says a one-year timeline is unrealistic for any founder or business, especially at such an early stage. “It’s stupid to take a year to close a deal one has promised on the show. No founder, even the sharks, would ever wait for a year to close a deal. It is unfair to the business,” Grover said.
Another founder, Kunal, was successful in setting up a meeting with the shark that had offered him money but was delaying the final close. “When we asked why there was a delay and how the deal could be taken ahead, we were told that a one-hour meeting — referring to the Shark Tank pitch — cannot tell a shark enough about the business,” Kunal says.
Grover says an hour is enough, and in fact, the money that was committed should have been with the founders before the show aired.
“The entire point is that when the show is broadcast, pitchers should have funds at their disposal so that they can capitalise on the spike in demand,” he said.
Grover said he had closed 55-60 percent of the deals he had committed to during the first season and that all deals, from a season, should be closed before shooting for the next season begins.
Capitalising on demand?
The very situation that Grover speaks of played out for Mohit, a founder whose startup saw significant interest after the show aired. Usage spiked, leading to revenue doubling in days. The spike in demand that Grover speaks of typically lasts for 30 days.
“The sharks are big-time bullies, big-time snobs. They respond only when they want to. I went to the show with such high hopes and today we are at a point where we may have to shut down the company, despite securing a deal,” he lamented.
Mohit said he was finally called for a follow-up meeting with his shark six months after the deal was offered. At the shark’s office, he saw other founders visibly upset about the shark re-negotiating deals for a lower valuation. He thought there might have been an issue with the other deals, but he too received similar treatment. “When I entered the room, the shark and seven people from his team started renegotiating the valuation,” he said.
Mohit said he was not in a position to lower the valuation as the company was already in talks to raise another round based on the valuation agreed upon on Shark Tank. “We did not budge and it wasn’t possible for us to do so too just for the shark. And that’s the last we heard from them. They have been AWOL (absent without leave) since,” Mohit told Moneycontrol. Mohit says he has left no stone unturned to revive talks, but to no avail.
‘We feel rejected’
Mittal says deals fall through because founders do not comply with conditions like hiring co-founders, cleaning up the cap table, or other points that the shark and the founder may have agreed on during the pitch.
“At times deals also do not go through because the founders ask for different terms from what we agreed upon, based on a new offer from a third party or a change of mind,” he added.
On the other hand Disha, another founder, said a member from the shark’s team casually told her that if the shark wishes, the team can bring up an issue with the due diligence (DD), or anything else, and use that as the reason to drop the deal.
“During the show, the sharks were fighting to invest in us, and look at where we stand now. We feel like a company that was rejected,” she said. Disha eventually found a backer who invested in her company.
Some feel that a bunch of deals may have fallen through because of a tougher market. Broadly, the funds coming into Indian startups through the private equity (PE) and venture capital (VC) route dipped by about 32 percent in 2022, as the ecosystem experienced the funding winter.
PE/VC funding 2022 v/s 2021
Despite the slowdown, the soft commitment that sharks made nearly doubled in season two. A soft commitment means that the sharks commit to investing a minimum amount. In season one, that figure was around Rs 8 crore, which jumped to about Rs 15 crore in season 2, according to Grover.
“Remember, in 2021 there was excess liquidity and secondary transactions gave sharks a lot of money to deploy. That changed as the market slowed down after mid-2022, so there was no logic in almost doubling the soft commitment,” Grover said. A secondary transaction is a stake sale by an investor to another investor.
“That was another big reason why sharks did not meet their commitments,” he explained.
Founders left stranded
Some founders say they saw massive interest from other investors when word on the Shark Tank deal got out.
Raj said he applied to Shark Tank just for the experience, but managed to land a deal “We were fortunate enough to get a deal. However, sharks lowered our valuation severely,” Raj said, adding that he accepted the deal only because having sharks as advisors would help his business grow.
During funding conversations now, he is asked if the Shark Tank deal closed. But nine months since, Raj is still waiting for the deal to be concluded.
“Now, when I speak to new investors, they first enquire if my deal with the sharks has closed. I am left with no choice but to tell them that it hasn’t moved since the show and because my valuation was lowered, new investors aren't willing to give me money at anything above the Shark Tank offer,” he explained.
“If the sharks didn’t intend to invest, why lower my valuation? After the whole experience I feel I would have been better off if I had not come on the show,” he added.
Grover, who didn’t appear in season two, has a solution for this. “Sharks should be asked to put the money they plan to invest in an escrow account. That way there is accountability and a budget, which ensures that none of them over-commit and later cancel.”
An escrow account is an account which holds funds, and releases the same subject to the fulfilment of certain conditions.
Issues on both sides
While sharks have been at the receiving end of the ire of the founders, Mittal says founders too wait to start work on closing the deal after their pitch airs, to see if they can shop for better offers from the market.
“Although not ideal, this is understandable since they are under no legal obligation to go ahead with the deal they agreed upon on the show. Further, shark schedules are extremely tight until the season is over. Between shooting and promoting the show, and running their companies, there is little time left for anything else, even family,” he added.
Mittal goes on to state that early-stage founders are sometimes unaware of the processes involved in closing a round of funding.
“Many are set up as proprietorships or partnerships, and start the process of company registration — which itself can take months — only after the season ends. Most have never seen an SHA (shareholder’s agreement) before, nor have they gone through a DD process. Our teams have to hand-hold them through many of these basic steps, in addition to helping them hire accountants, and set up basic governance frameworks. All this takes time.”
He also adds that sometimes deals don’t go through because the company fails legal, financial, and / or tax diligence, or the founders did not meet the obligations agreed to while accepting the deal.
Also, some founders said that their fellow founders on the show had admitted to inflating revenues and profits while pitching, because of which their deals did not go through subsequently.
“When we enter the sets we are told that the chances of our pitches being aired multiply if we are able to close a deal. Under that kind of pressure, many founders take up any deal, however much value it erodes,” a founder said, while explaining why companies inflate numbers.
Three of the 12 founders Moneycontrol spoke to said the sharks are responsive to them, and even suggested ways to scale their startup.
“My money hasn’t come in yet but that is because my shark wanted me to change from a proprietorship to a company, and there were also some loopholes in my DD, which I am now sorting out after chatting with my shark on WhatsApp,” the founder added. Another one said that all the sharks were in on his venture and the fundraising plans were on track.
Another founder who raised money on the show said a small component of the deal included debt funding. While he had no issues with that, after a long delay, he was told by the shark’s team that the company did not have a valid licence to issue debt.
"A company's shareholder can always issue a loan. If the shark wanted to fund, they could have bought just one share of the company and given a loan. There are ways to solve such issues if the intent is there," said Grover.
Questions of intent aside, Mittal says the show “must be celebrated for funding hundreds of founders and inspiring millions of others.” But the trail of founders who say their companies have been brought to their knees due to the actions of sharks belies this. Whether it truly plants seeds in the minds of a new generation — as Mittal says — or steers them away from this path, remains to be seen.
Peyush Bansal, co-founder, Lenskart, Aman Gupta, co-founder, Boat, Namita Thapar, executive director, Emcure Pharmaceuticals and Amit Jain, co-founder of CarDekho were the other sharks on the show. None of them replied to detailed questionnaires sent by Moneycontrol.
Vineeta Singh, co-founder, SUGAR Cosmetics, also a shark, declined to offer comments for the story. An email to Sony, Shark Tank's broadcaster, did not elicit a reply till the time of publishing.
*All names have been changed to protect identities.
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