Which is a better deal for your business?

Offer 1: $35,000, the investor owns 100% of your business, and you get a 2% royalty.

Or

Offer 2: $50,000, the investor owns 51% of your business.

It depends on your belief on whether you will be successful or not with your own business or you should do a licensing deal. Offer 1 was a licensing deal.

Last night I watched about five minutes of an ABC show called Shark Tank. A regular group of investors review pitches from entrepreneurs and they offer a deal right there. Whether or not they consummate a deal depends on negotiations later but the deal offers are in good faith.

The owner of turbobasters.com was pitching her business. You can visit the web site to see it. She was given the two offers. She chose offer #1 because the investor had the network to get her product sold. 2% of something was better to her than 49% of nothing.

I stopped watching. Instead, I started doing my own little due diligence on the internet, visiting her website, texasstartups.com, and the show website.

A few things came up:
1. She does not have a working prototype. All she has are some drawings and a good idea. No business plan, or marketing plan. However, she may have mentioned that on the show.
2. The show does not do any business due diligence; only background checks.
3. Evidently other inventors get on there and instead get an offer to license their product.

As one poster put it succinctly on the texasstartupblog.com: some of these people have no business running a business…they are much better off licensing their product. In this case, the lady took the right deal between the two, if it really was a license.

As for my thoughts on the show; I have not watched enough of it. I do wan to point out one idea: This is on TV so it is supposed to be entertainment and there is a big difference between that and what investors do make sure they make a solid deal.

Quick note:

Offer 2 valued the business at $98,000.  Offer 1 said the business was worthless and it was just the idea that was valuable. Big difference.