If you’re a regular viewer of Shark Tank, you’ve probably heard the Sharks ask questions like, “What’s your revenue?” or “Is your intellectual property patented?”
These Shark Tank business terms are frequently used throughout the show. However, if you’ve ever found yourself confused by the flurry of financial jargon, don’t worry. This article is here to help you understand the key terms used in Shark Tank. Whether you’re an entrepreneur gearing up to pitch or a fan wanting to enhance your viewing experience, familiarizing yourself with these terms will make your Shark Tank experience even more enjoyable.
Shark Tank Terms You Must Know
Pay close attention to these Shark Tank business terms the next time you watch an episode or attend a real-life pitch. This will help you understand their practical relevance and how they apply in the world of entrepreneurship:
1. Valuation
Valuation refers to the process of determining a business’s worth, which is essential for both investors and entrepreneurs. For example, if a tech startup is valued at ₹1 crore, it means investors believe the company’s potential justifies that value, taking into account factors like growth prospects and market demand.
Take Diksha Singhi, the founder of “A Little Extra”, for instance. In her pitch, she sought ₹48 lakhs for 6% equity in her company, which put her business’s valuation at ₹8 Crores.
To calculate the valuation of a business based on this example, you can use the following formula:
Valuation = Investment Amount / Equity Stake
2. Equity
Equity signifies ownership in a company, typically offered to investors in return for funding. For instance, if an investor invests ₹5 lakh for a 10% equity stake in a startup, they own 10% of the company. As the business grows, they will receive profits in proportion to their ownership.
You can also calculate equity using the formula below:
Equity = Investment / Total Valuation * 100 %
3. Angel Investor
An angel investor provides funding to a new business in exchange for equity or convertible debt. These investors are also known as informal investors, seed investors, or business angels.
Typically affluent, startup investors are looking to earn higher returns than traditional investments offer. They are often willing to wait longer for their investment to generate returns and may provide smaller amounts of funding over an extended period.
4. Seed Round
The seed round is the first stage of funding for a startup, typically provided by friends, family, angel investors, or early-stage venture capitalists. This funding is used to develop and launch the product or service.
4. Seed Round
The seed round is the first stage of funding for a startup, typically provided by friends, family, angel investors, or early-stage venture capitalists. This funding is used to develop and launch the product or service.
5. Gross
Gross refers to the total revenue a business generates before any expenses are deducted. For example, if a store makes ₹50 lakhs in sales, its gross revenue is ₹50 lakhs before accounting for costs like rent, salaries, and utilities.
In the episode featuring Lea Clothing, founder Lavanya Aneja impressed the Sharks by sharing her business’s gross margin of 80%. Their reaction highlighted just how impressed they were with her business’s financial performance.
You can calculate the Gross Margin using the formula below:
Gross Margin(%) = (Revenue – Cost of Goods Sold/Revenue) * 100%
6. Net Income
Net income is the profit left after all expenses, including taxes and depreciation, are subtracted from total revenue. For example, if a company generates ₹30 lakh in revenue and incurs ₹20 lakh in expenses, its net income would be ₹10 lakh.
Net Income = Revenue – Expenses
7. Margin
Margin reflects a company’s profitability from its operations, calculated by subtracting total costs from revenue. A higher margin indicates more efficient operations and greater profitability. For example, if a product costs ₹200 to produce and sells for ₹500, the profit margin is 60%.
Margin profit is crucial for assessing a business’s growth potential. A higher margin profit can help build confidence in your business when pitching to the Sharks.
To calculate the margin, use the formula below:
Margin = (Revenue – Cost/Revenue) * 100%
8. ROI (Return on Investment)
ROI (Return on Investment) measures the profitability of an investment in relation to its cost. For example, if an investor invests ₹1 lakh into a project and receives ₹1.5 lakh in return, the ROI is 50%.
Use the formula below to calculate ROI effortlessly:
ROI = (Net Return/Cost Investment) * 100%
9. Due Diligence
Due diligence refers to the research a business conducts before entering into any transaction or agreement with a third party. This process helps the business assess the trustworthiness of the party and understand the potential benefits or risks of the partnership.
It can be carried out by reviewing publicly available information or by evaluating factors such as employee performance, product progress, and the potential for business growth.
10. EBITDA
If you’ve watched Shark Tank India, you’ve probably heard the Sharks ask, “Please tell us your EBITDA.” Here’s what that means.
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It’s a metric that provides a clearer picture of a company’s operating performance by excluding non-operating expenses. Investors often use EBITDA to evaluate a company’s financial health and its ability to generate profits.
EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortization EBITDA = Operating Income + Depreciation + Amortization
11. Royalty
In a royalty deal, an investor provides funding to a company in exchange for a portion of the company’s sales. This could be either a percentage of sales or a fixed amount per product sold.
For example, in the pitch by Adil Qadri perfumes, Vineeta Singh invested ₹1 crore for 1% equity, along with 1% royalty on net revenue until she recoups her ₹1 crore investment.
12. Customer Acquisition
Customer acquisition is the process of attracting new customers to a business through marketing and sales strategies. For example, a social media platform might use targeted advertising campaigns to attract new users.
13. Target Audience
The target audience is the specific group of individuals a business aims to reach with its products or services. For instance, a luxury fashion brand might target affluent consumers aged 25-40 who have a high disposable income.
14. Convertible Notes
Convertible notes are loans given to founders by startup investors that can later be converted into equity. This typically happens during a future funding round. They allow startups to raise capital without having to establish a valuation right away.
15. Advisory Shares
Advisory shares are equity stakes given to advisors or consultants in exchange for their expertise and guidance. For instance, a startup might offer advisory shares to an experienced entrepreneur who provides valuable strategic advice.
16. Market Value
Market value is the price at which an asset would be bought or sold in a competitive market. For example, the market value of a publicly traded stock is determined by supply and demand on the stock exchange.
17. Purchase Order
A purchase order is a document created by a buyer and sent to a seller, outlining the details of a transaction such as quantity, price, and sale terms. For instance, a retailer might issue a purchase order to a supplier to request inventory for their store.
18. Soft Launch
A soft launch is the gradual release of a product or service to a small audience to collect feedback prior to a full launch. For instance, a software company might roll out a beta version of its app to a chosen group of users for testing.
19. Intellectual Property
Intellectual property (IP) encompasses creations of the mind, including inventions, literary and artistic works, and commercial names. Various forms of protection, such as patents, copyrights, trademarks, and trade secrets, are used to safeguard different types of IP.
To better grasp the concept of IP, consider the pitch from Bio Ecotraps. The co-founders highlighted how their invention contributed to an 80% reduction in Dengue rates!
20. Crowdfunding
Crowdfunding is a way to raise money for a project or venture by gathering small contributions from a large number of people, often through online platforms such as Kickstarter or Indiegogo.
Conclusion
Shark Tank India is a renowned show that has turned many businesses into overnight successes. For entrepreneurs, it’s essential to understand the key business terms featured on the show. Mastering these terms not only improves your presentation skills but also boosts your confidence, enhances communication, and increases your chances of securing opportunities. Keep in mind, these terms are just the beginning. Stay tuned for more informative articles to continue expanding your knowledge.
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