Blood in the water: An abductive approach to startup valuation on ABC's Shark Tank

Abstract

Most negotiations over startup valuation take place behind closed doors. As a result, we lack knowledge about how valuation is negotiated between entrepreneurs and investors. We constructed a dataset by hand to exploit the unique nature of a popular business pitch television show, ABC's Shark Tank, to examine this issue. Our descriptive findings suggest that entrepreneurs who initially offer less of their company to investors are more likely to receive investment offers. We also discovered that startup valuation negotiations tend to take place over the relative equity percentage each party receives rather than investment amount. Finally, although investors are more likely to experience negotiation gains, entrepreneurs who successfully pit sharks against each other receive deal terms closer to their initial ask. These results add to the emerging literature on dynamic process of startup valuation.