What Do The Numbers Mean on Shark Tank? | FranFinders
In two weeks I’ll be attending the open call for Shark Tank in Charlotte, NC. As I get ready for the event, I’m going to cover some topics to help explain how Shark Tank works. Today I’m, going to cover the numbers.
You’ve seen the show, the business owner comes on stage, gives their pitch and then the close. “I’m asking for $300,000 for 20% of my company.” As soon as the numbers are out, the Sharks start scribbling on their pads. What are they writing down?
They are quickly calculating the valuation of the business. You see some of them roll their eyes on some pitches, due to such a high valuation.
What do the numbers mean? Let’s do the math. $300K is 20% of what valuation. That’s basic middle school alegebra. If you take $300K and divide by 20% (0.20) and that will equal $1,500,000.
That’s the quick math, now, how did the company come up with a $1.5 Million valuation. Most business valuations are a multiple of the revenue.
Of those businesses that use a multiple for valuation, they can range greatly. If the business segment has a multiple of “3” for instance, and the revenue is $500K annually, then the valuation would be $1.5 Million.
So, now that you know what the numbers mean, the next time you watch the show, have your pad ready and see if you can figure it out before the Sharks.