Shark Tank due diligence costs Steve Baxter $300,000 a year

Shark Tank

Shark Tank judge Steve Baxter has shed light on why so few businesses pass through the due diligence process after scoring deals on the popular reality TV show for entrepreneurs, pointing to both a lack of thoroughness and other motives for wanting to appear on the show.

Last month, Baxter told The Australian he spends around $300,000 a year to employ four full-time staff to work on completing due diligence for Shark Tank deals.

With his business based on investing, Baxter said not sealing the deals delivers “all the expenditure but no revenue”.

“That’s not something I want, but at the same time, I’m not going to invest in stupid things,” he told The Australian.

Recent Fairfax Media analysis revealed that of the 50 businesses that appeared on Shark Tank last season, 27 received offers of investment on television, yet just four investments actually went ahead.

Baxter said there’s are a number of issues that stop deals from going ahead.

“Some of the things we see is some businesses literally don’t have a repeatable set of financial accounts,” he said.

“They don’t use software, or if they do it’s that poorly configured that when you run the same report twice you get a different answer. Which doesn’t fill you with confidence.”

Baxter also revealed some entrepreneurs who appeared on the show weren’t even seeking a deal, but were more motivated by exposure.

“We tell them ‘we’re happy to stay mum, just tell us, so we stop wasting each other’s time’,” he said.

“We’ll maintain the secret for you, we’ll do that. It saves both time both ways. It’s nothing that unusual.”

NOW READ: Shark Tank‘s Naomi Simson on the uncertain world of startup investing


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