I’m not ashamed to admit I like watching Shark Tank . . . a lot. I find it highly entertaining to imagine how I might personally fare as an entrepreneur in The Tank.
In addition, I bring an extra layer of concern to my viewing because I'm a patent attorney immersed in the area of intellectual property (IP) law. And I can’t help but notice how IP plays a part in nearly every investment decision the Sharks make where potential copying is a concern.
While I wouldn’t go so far as to say that the show reflects the real world overall, those times that I've seen IP become an issue for the Sharks is certainly not far from reality. Almost without fail, Kevin O'Leary, Mark Cuban, Lori Greiner and the other Sharks delve into the IP issues of the proposals before them whenever they see the potential for copycats.
And in that way, they're just like investors outside The Tank.
Where the risk of copying Is high, the need for IP Is greater.
Indeed, IP was undeniably a critical factor in a deal I recently saw during Season 7 of Shark Tank, where a startup was actually able to get all five sharks to invest. xCraft is a creator of drones that can switch from a traditional hovering mode to a unique high-speed aircraft mode. On the show, inventor JD Claridge showed the company's X PlusOne drone but also another product in development: the PhoneDrone, which turns a smartphone into a drone and is suitable for professional purposes, such as landscaping.
In the end, xCraft not only secured that deal with all five sharks, but ended up with a $6 million valuation, which was more than double the initial $2.5 million valuation with which the company had begun. Fans of the show will recognize that things usually go the other way around, where the sharks attempt to diminish the original valuations entrepreneurs set. So, how did xCraft get all five sharks to invest pursuant to a higher valuation?
Let me suggest that the following exchange was a pivotal moment: Shark Robert Herjavec asked a couple of key questions that preceded the prediction fellow Shark Daymond John made about a “nasty, nasty shark fight that’s about to happen”:
Question: “Where’s the secret sauce in your company? Tell me what somebody can’t knock off.” [italics mine]
Answer: “It’s really about the IP behind the designs.”
The entrepreneurs then explained that their designs were patent-pending and that they envisioned licensing their technology “silly.”
The xCraft deal was not unlike the end result of the Windcatcher pitch in Episode 6, where inventor and entrepreneur Ryan Frayne demonstrated a unique valve that allows a user to inflate devices with ease and in a fraction of the time conventional valves require. Again, IP played a major role as Frayne reported that he'd protected his innovation with an issued patent and patents pending.
Of course, where the risk of copying is low, the need for IP Is less: The Sharks have reached deals with companies that don't necessarily have IP or a business model or product that can be easily copied. Rent Like A Champion, which pitched its deal in Episode 6, comes to mind. The business facilitates the rental of homes in small towns that attract big crowds through events such as collegiate football games.
Rent Like A Champion's business model is unlikely to be duplicated because of its intensive and widspread grassroots approach, which sends team members to small towns to educate homeowners in person about using the company's website.
IP Is significant to the ones holding the money.
One pattern I’ve seen over and over again, meanwhile — not from Shark Tank, but the real world — is that entrepreneurs who recognize a potentially high risk for copying tend to have more success raising capital than those who ignore the risk.
That's got to be because those who recognize the risk take steps to protect their innovations. By protecting their IP, they have something to show to the folks writing the checks. So, if you're an entrepreneur developing a product or service that could itself be duplicated you might want to follow their example.