With the cameras rolling, Daniel and Stephanie Rensing accepted an offer from a “Shark Tank” investor. But after they had time to think about it, they changed their minds.
Annual revenue for their company, The Smart Baker, is close to $1 million, up from $130,000 before their March 2012 appearance on the ABC reality TV show.
“Not doing the deal and having that exposure was probably the best scenario for us,” says Daniel Rensing, CEO of the Rockledge, Fla., company which sells aprons, parchment paper and other baking equipment.
Dreams of investor money have induced more than 150,000 businesses to apply to be contestants on “Shark Tank,” where entrepreneurs pitch to cast members who include Barbara Corcoran, founder of a prominent New York real estate brokerage; Daymond John, founder of the clothing company FUBU; and Robert Herjavec, founder of the technology conglomerate Herjavec Group.
Entrepreneurs may be all smiles when they get an offer on the show, but the deals aren’t set in stone. Negotiations start soon after episodes are taped. Contestants can walk away if they don’t like the terms.
“When we shake hands on a potential deal on Shark Tank, the romance runs high, and everyone’s excited about what could be,” Corcoran says. “In the end, the entrepreneur is in charge.”
During the first five seasons, 374 contestants appeared on TV, and investors made 190 offers, according to ABC. Forty-eight contestants turned down offers during taping, executive producer Clay Newbill says. They haven’t tracked how many deals fell apart during negotiations.
Corcoran offered $75,000 for 40 percent of The Smart Baker, and a 5 percent sales royalty, during the 2011 taping. During negotiations, the Rensings disagreed with Corcoran about the target market.
Corcoran says she was disappointed, but she knows a rejection is an occupational hazard on “Shark Tank.”
“Nobody likes to be turned down, especially me,” she says.
The Smart Baker has thrived without her money. In the following year, revenue grew to $600,000. The episode also helped the company get noticed by Food Network and other media. Reruns provide a sales bump.
The right move?
Some contestants may turn down offers because they feel there are more important things than getting investors, says Matthew Rutherford, an entrepreneurship professor at Oklahoma State University who has studied “Shark Tank” pitches.
“What they crave over everything including money and wealth is autonomy,” Rutherford says.
Entrepreneurs who appear on the show are likely hoping for both a cash infusion and control of their companies, says Harvard Business School professor Noam Wasserman. But the money doesn’t guarantee success.