Angel investors have become increasingly significant players in entrepreneurial ecosystems. Typically, angel investors are “successful former entrepreneurs who give back to their local community and actively engage with their portfolio companies”. 1 Angel investors are distinct from traditional venture capitalists because angel investors are “filling the vacuum in early-stage capital” compared to venture capitalists (VCs) who are more focused on later-stage deals.2 Moreover, because angel investors invest their own money they are less susceptible to agency problems which are a frequent occurrence for VC funds.3 Their footprint on the ecosystem is well documented as their investments are geographically diverse and spread out across regions unlike the concentrated investments of VCs in California and New England.4
Entrepreneurship has become popularized in the hit television show Shark Tank. This show, which airs on ABC, features a panel of well-known and successful entrepreneurs who hear pitches from aspiring entrepreneurs looking for an investment opportunity from the “Sharks”. Some of these Sharks include Mark Cuban, Lori Greiner, Kevin O'Leary, Barbara Corcoran, and Daymond John. See a list of all the Sharks who have appeared on the show here. While each Shark has their own stories of entrepreneurial success, they offer deals to investees seeking their advice and guidance to take their businesses to the next level. However, this begs the question: are the Sharks considered angel investors?
While there are many similarities between the Sharks and angel investors on face, there are notable differences. For instance, one article details the primary similarities and distinctions:
On television, entrepreneurs who need money enter the Shark Tank. In real life, they turn to angels.
Like Mark Cuban and his fellow sharks on the popular television show, angel investors hear pitches from budding business owners hoping to create the next big thing. But unlike TV’s sharks, these local financiers don’t try to outmaneuver each other to snag the best deal. Instead, they put their heads together to discover the best opportunity.5
Moreover, there are differences between an angel investor and a Shark in how negotiations occur. On the show, the Sharks are more aggressive than an angel would be when communicating with entrepreneurs or among other investors.6 Part of the reason for this is the entertainment value of a TV show featuring the Sharks where they are somewhat in competition with one another to secure the most valuable deal with an entrepreneur. Of course, this creates drama where sometimes the Sharks undercut one another so an entrepreneur takes their offer over another Shark. This contrasts from an angel investor group which is typically more collaborative. While the Sharks sometimes collaborate with each other in dealmaking there are still substantial differences:
Egos are also set aside. Angels who try to look like the smartest person in the room will be run out of their angel groups pretty quickly. This is part of an angel group's brand and code of conduct. If there is competition among angels, especially in groups, it happens behind the scenes, not in front of an entrepreneur. Real life angels focus on working together to make everyone successful.7
The pitch process also differs vastly in the Shark Tank from the traditional angel investment. Shark Tank pitches are compressed for “TV time” typically to a few minutes even if the pitch lasts around an hour.8 The Sharks are busy individuals, they have no knowledge of the business entering the Shark Tank before the entrepreneur starts their pitch. So it is up to the entrepreneur to effectively persuade the Sharks to invest in their company during their allotted pitch time. On the other hand, angel investors take their time to vet deals and do due diligence.9 Angel investors are not bound by time limits, so the initial pitch can last hours, and they can choose to have follow-up meetings before investing.10 Moreover, the due diligence process can take a few weeks, if not longer to ensure a successful partnership between investors and entrepreneurs.11 Because of the time constraints as well as the entertainment purpose of the show, the pitches are make or break in Shark Tank.
Given that the process between a Shark Tank pitch varies greatly from an angel investor, what similarities are there between the two? Both groups provide constructive feedback to entrepreneurs during their pitch irrespective of the Shark/Angel’s willingness to invest in the entrepreneurial venture. Although the process is different, there is major overlap between the two models:
Both look for entrepreneurial qualities and leadership in the entrepreneurs they support. Both run into starting valuation differences with entrepreneurs, and walk away from otherwise interesting deals when valuations are too high. Negotiation approaches might be different, but the result is often the same.12
Whether an entrepreneur chooses to pursue the angel investment or Shark Tank path truly depends on what the entrepreneur is seeking in these pursuits. Both models have their advantages and disadvantages, and some entrepreneurs may even try to secure an investment from both models. Either way, both investment approaches at the end of the day are intended to help entrepreneurs in their entrepreneurial journeys with knowledgable investors!
