You’ve probably seen it before: Entrepreneurs go on a reality television show to pitch their ideas, and they walk away with a handshake agreement and a new investor. But, as you might imagine, a lot more goes into closing a deal than a simple handshake. A handshake is just the beginning.
On investment reality shows, what you see on television is only the start of a long due diligence process that may or may not result in an actual investment or partnership. Here’s a look at why these television entrepreneurs choose due diligence, as well as what specifically they are looking for during the due diligence process.
In general, due diligence is all about gathering as much relevant information as possible before making a significant business decision — whether that be making a key investment, closing a key acquisition, or bringing on a key executive. Investors on reality shows have the following goals when they enter the due diligence process:
Of course, a comprehensive due diligence process will return a wealth of information both about individuals and entities, and any one piece of information could be enough to thwart a deal or agreement.
How exactly does due diligence work after television shows? The handshake the audience sees is not contractually binding, but it does launch a lengthy process that doesn’t always end in a deal. Post-show due diligence starts with confirmation that the entrepreneurs’ claims are accurate. Those who appear on shows will share sales and revenue numbers — the first step is confirming that those numbers are accurate. After numbers are confirmed and potential investors get other relevant information, both parties have to decide whether or not to move forward. In some cases, the investor still wants to move forward — but the business owners have learned something about the potential deal that makes them want to call off the deal.
According to investors on Shark Tank, about 80% of deals on Season 7 closed. That’s remarkably aligned with the hit rate we see at CS Business Screen, where about 20% of individuals and 15% of companies we conduct due diligence investigations on having a relevant record. When you need fast, precise due diligence information, whether, on a company or an individual, we’re here to help. Before you make a significant business decision, make sure you have all relevant information by conducting a due diligence background check. Contact us to learn how we can help.