Yesterday, I took you through the post-show process pursuant to which the Dragons and the pitchers seal their deal. But do all deals get done?
The quick answer is -- no.
Not all deals you see on TV end up closing post-show. The question is WHY?
I’ve been in the venture business for almost 10 years, and like the Dragons, I’ve seen deals go sideways for a lot of different reasons. The same is true with deals done on TV (even more so). Here are the top five reasons a deal might not close after a handshake in the Den:
- During Due Diligence (the process by which the investors corroborate the facts shared with them in the Den) facts presented by pitchers don’t hold up (e.g. the pitcher said he had a patent, but really all he had was a patent pending).
- After the show airs, but before the deal closes, the entrepreneurs get a better offer. (Last year the underwear guys got a much better offer after the show hit the air).
- After the taping, but before the show airs, the entrepreneurs get cold feet and no longer want the deal. (Maybe after reading some of your forum posts? :)
- The shareholders of the company (who are usually the original pre-Dragon investors) don’t agree with the deal management has struck with the Dragons.
- The Dragons learn facts that undermine the investment. (For example, during due diligence, the pitcher turns out to be extremely hard to work with).
For those reasons, many deals done in the Den - just like in the real world - don’t close. Is that good? Bad?
Neither, it just is!
Posted on Oct 23, 2007 10:00:00 AM