Shark Tank India deals explained: equity, royalty, debt and what happens after

A founder walks in, says how much money they want and how much of the company they are offering, and pitches. Investors, called sharks, ask questions and then make offers or walk away.

If a shark and a founder agree, that is the on-air deal. It is a handshake with numbers attached. The paperwork comes later.

The show runs on a tight clock, so the shark can ask for a lot of information in a short time. The founder must know the numbers: sales, costs, how much has been raised before and who owns what.

A founder who has already raised money should also check what the old investors' agreements allow. Earlier investors may hold rights that affect whether new shares can be sold on the same terms.

Sharks may also make offers together. Two or more investors can split the money and the equity between them, which means the founder deals with several new shareholders instead of one.

Most deals fall into a few shapes, and the headline number alone does not tell you which one you are looking at.

• Equity: money for a share of the company. The investor becomes a part-owner.
• Debt: a loan the company repays with interest. The investor does not get shares.
• Royalty: the company pays a small percent of its sales to the investor until a set amount has been paid back.
• Mixed: for example part equity and part debt, or equity plus a royalty on top.

The valuation on the show is a simple sum. Divide the money asked by the equity offered. If a founder asks for ₹50 lakh for 5 percent, the implied valuation is ₹10 crore.

This is a post-money figure: the value of the company right after the new money goes in. Our guide on pre-money and post-money explains the difference.

The number is a negotiating tool. Founders often start high, and the final deal may be at a lower valuation, or with extra terms such as a loan or a royalty, which changes what the percent really costs the founder.

A quick way to check any deal is to divide the money by the percent. If the investor puts in ₹30 lakh for 6 percent, the company is valued at ₹5 crore after the deal, and ₹4.7 crore before it. Founders who learn this sum can compare offers quickly.

An on-air deal is usually subject to due diligence: the investor checks the books, the claims and the legal papers after the show. If something does not match the pitch, the investor can change the terms or step back.

Other reasons are simple. The two sides cannot agree on the final paperwork. The founder gets a better offer. The company's numbers change. Some founders also decide the terms no longer suit them.

Because of this, a deal shown on TV is best read as an intention. News that a deal closed is more reliable than the episode itself.

After the episode, the lawyers take over. The two sides sign a shareholders' agreement and a subscription agreement, the money moves, and the company updates its records with the Registrar of Companies.

Brands often see a jump in orders or website visits after airing. That is attention, not funding, and it fades unless the product keeps people buying.

The time between the episode and the money can run to weeks or months. During this time the founder cannot always talk freely about the deal, because the terms are not final. Contracts may also limit what can be said in public.

When a brand that appeared on the show later announces funding, check three things. Is the round new money from fresh investors, or the earlier deal restated? What was the size and who led it? And does the news give revenue for a full year, or a monthly run rate?

Annual revenue filed with the Registrar is firmer than a figure quoted in an interview. A brand saying it did a large figure in sales may be talking about gross sales, which is not the same as revenue. Our guide on GMV versus revenue explains the gap.

In a debt deal, the main numbers are the amount, the interest rate and the repayment period. The founder keeps all the equity, but must repay the loan whether the business does well or not. That is safer for ownership and riskier for cash.

In a royalty deal, the founder pays a small percent of sales, usually until a fixed total is repaid. If sales are slow, repayment is slow. If sales grow, the investor is repaid sooner. The investor does not share in any later sale of the company.

Mixed deals combine these, and the extra terms are why two deals with the same headline figure can be very different. A ₹1 crore deal with equity only is not the same as ₹1 crore where half is a loan.

Equity is the visible price. The others are less visible. An investor may ask for a seat on the board, a say in big decisions, or a right to invest more later at a set price. These rights can matter as much as the percent.

There is also a cost in future rounds. A deal at a low valuation sets a low reference point for later investors. A founder who took a deal at a very low valuation may face a harder conversation in the next round, even if the business has grown since.

On the plus side, a well-known investor brings contacts, credibility and advice. Whether that is worth the price is a judgement each founder has to make.

The show is entertainment first. It compresses a long negotiation into a few minutes. The useful lesson is how founders think about price, control and trade-offs, not any one valuation figure.

None of the figures shown should be taken as a guide to what a company is worth today.