The Hewlett Foundation Blog
January 24, 2014 — By Ruth Levine
I’ve become a fan of Shark Tank. If you haven’t seen it, here’s the premise of this reality TV show: five or six venture capital types (the sharks) listen to pitches from a series of entrepreneurs, and respond with critiques (sometime bordering on ridicule), compliments and an occasional offer of money in exchange for a stake in the budding business. It’s a caricature of the venture capital world and it’s pretty darn entertaining.
It turns out we are not so different than the sharks. The questions that the investors ask of the pitchman (or pitchwoman) are very much like the ones we do, or should, ask of our grantees, although within our non-profit aquarium and using our own language. Here are the types of questions they ask:
- How original is the idea, and/or how unique is the style and quality of the product?
- How big is the market? Is this responding to existing demand, or is it such a new idea that it’s something no one thought they needed before?
- Is the inventor able to sell an idea and execute on it, or is he or she just the “ideas person”? Is there a track record of earlier success?
- What are the financial and other risks, and how are those risks going to be distributed among the parties?
- What are the distributors through which the product gets to the market, and what do those distributors want, in terms of a cut of the profit or a chance to put their own brand on the product?
Many of the non-profits we work with would cringe at questions like this, but I’m guessing that more attention to cost structure, risk allocation, entrepreneurship and the nature of demand for goods and services would sharpen all our thinking.
Most interesting to me about Shark Tank is how the investors figure out whether they are a good match for the project, regardless of its intrinsic merits. They consider what they can bring through their own knowledge of the business sector, sales ability and professional network. When they invest and take a stake in the business, they are offering much more than money – often the money is relatively small potatoes – and they take seriously the time and other commitments required to give the enterprise a fighting chance. “Beyond the grant dollars” in a big way. So you hear them saying things like, “I could work with you to make this thing succeed, but I’m working on too many other high-effort projects right now, so I’m out.” Or, “I think you’re onto something, but I won’t have anything to bring to the table in your line of business.” Also fascinating is the interplay among the potential investors, which sometimes results in a multi-party deal, with each bringing distinctive ingredients and demands into the mix. All of these are analogous to our world of grant making.
I realize that the concept of venture philanthropy is not exactly new, and many venture capitalists are taking their bank accounts and know-how to the philanthropic enterprise. I also realize that we have more nuanced and hard-to-measure strategies than the sharks’, which presumably is “make the most possible money.” But Shark Tank’s amped-up version of the investor-entrepreneur dealmaking makes me wish for just one episode where the ideas are focused on social rather than commercial value, and the panel is a mix of venture capitalists and, well, us.