What Are Advisory Shares On Shark Tank

What Are Advisory Shares On Shark Tank

If you’ve been watching Shark Tank and keenly listening to the negotiations phase on the ownership of the company, you may have heard the sharks offering advisory shares to the entrepreneurs. Some entrepreneurs also present this offer to the investors. You may have been left wondering, what the hell is advisory shares?

Advisory shares on Shark Tank refer to a form of non-equality ownership in a company where the shark (investor) gets the opportunity to advise and offer their expertise to the business without holding the traditional equity ownership. Advisory shares involve the investor getting a stake in the company’s future success without owning a percentage of the business.

In this article, we’ll delve deeper into what advisory shares are all about and how they work. We’ll also discuss advisory vs. equity shares and the advantages and disadvantages of advisory shares.

What are advisory shares on Shark Tank?

Advisory shares, also known as advisor shares, are simply stock options (not stock) sold to the company advisors. These advisers are usually experts who offer their advice to the company on aspects such as business strategy.

Advisors are different from professionals such as accountants who offer their services at a fee.

In the case of Shark Tank, the investors/sharks who opt for advisory shares end up getting a stake in the business’s future success in exchange for offering advice and expertise to the company.

However, the investor does not own a percentage of the company. Advisory shares are unlike equity shares in that they don’t offer the investor direct ownership or voting rights in the business.

These shares are usually structured around a specific timeframe, during which the shark will be offering his support and advice.

What are advisory shares on Shark Tank

Because the advisory shares are flexible, they can be easily tailored to suit the specific needs of the entrepreneur and the investor.

Still don’t get it? Here’s an advisory shares example:

In one of the Shark Tank episodes, Jane, an entrepreneur, secures a $100,000 investment from Mark Cuban for her tech startup.

Instead of giving a certain percentage of equity in her businesses, the entrepreneur offers Mark advisory shares, meaning he’ll be providing him with guidance but not ownership.

Mark’s input of advice and expertise into Jane’s business helps catapult it to success.

Thus, the two celebrate a profitable exit together—demonstrating the power of strategic advisory share agreements.

In some cases, the founders of the business may structure the deals to include both the regular shares plus advisory shares.

Take for instance an entrepreneur who appears on Shark and pitches their investment as $100,000 for 20% equity plus 5% worth of shares as advisor shares.

Since advisory shares are simply stock options; they don’t reflect in a company’s current valuation.

Pros and cons of advisory shares on Shark Tank

In this section, we’ll explore the advantages and disadvantages of having advisory shares as an investment option on Shark Tank. This way, you’ll be able to make more informed decisions on whether you should go for advisory shares or regular shares.

Advisory shares on Shark Tank

Pros of advisory shares:

  • Advisory shares let you retain a large portion of your company’s equity, which is great for maintaining control and decision-making power in your business.
  • Advisory shares offer the entrepreneur access to guidance, expertise, and a network of experienced advisors. This kind of mentorship will be invaluable in the growth and development of your business.
  • With a well-known advisor (shark) on board, your company’s visibility and credibility will significantly improve. Thus has the potential to open the door to opportunities and partnerships.

Cons of advisory shares:

  • Advisory shares usually involve less direct financial investment, unlike equity shares. As such, they can limit your access to capital or resources, which would be crucial for your business expansion.
  • Conflicts may arise between the advice offered by the investor and the entrepreneur’s vision of the business. Such differing interests and opinions can turn out to be challenging.

Advisory shares vs. equity Shark Tank

Now that we have discussed what advisory shares are all about, you may be wondering how they compare with equity shares or regular shares offered on Shark Tank.

Equity shares are unlike advisory shares in that they involve giving a certain percentage of ownership in your business in exchange for an investment or funding from the sharks.

As an equity shareholder in your company, the shark will have a say in the business decisions and even qualifies to participate in the board elections. This will no doubt affect the entrepreneur’s control level in his or her company.

Equity Shark Tank

An equity deal usually involves financial commitment on the investor’s side, where they fund the business with the agreed amount of money in exchange for equity ownership.

Still on advisory shares vs. regular shares, the equity shares are majorly about securing capital for your business growth and expansion.

Equity shares are also a long-term commitment, with an expected continued working relationship between the shark and the entrepreneur.

This is unlike advisory shares that involve a specific timeframe or focus on specific areas.

If you’re an entrepreneur interested in applying to Shark Tank and want to know more about the application process, don’t miss our article on Shark Tank Application. It provides valuable insights into how to apply and what to expect. Additionally, if you’re wondering where to watch Shark Tank episodes, check out our guide on Where to Watch Shark Tank to find the best platforms for enjoying the show.

Conclusion

Now you know how advisory shares work on Shark Tank. As we’ve discussed in this guide, advisory shares on Shark Tank involve securing mentorship and support for your business from the sharks without giving up ownership of your business. This model of investment is advantageous in that it helps you retain control of your company while granting access to the expertise of seasoned entrepreneurs and industry experts.

Having discussed the key benefits and downsides of advisory shares and how they differ from ordinary shares, we’re hopeful that you’re now in a better position to decide which type of shares to consider for your business.

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