Many of our listeners are familiar with Shark Tank, but how does the TV show compare to real-life private equity investing? In this week's installment of Industry Focus: Financials, longtime Shark Tank star Robert Herjavec and guest shark Daniel Lubetzky (founder of Kind) join contributor Matt Frankel, CFP, for a look into their investment styles and much more.

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This video was recorded on April 19, 2021.

Matt Frankel: It's Monday, April 19, and I'm your host, Matt Frankel. On today's financial show, we have a great interview lined up for you. You know Robert Herjavec from Shark Tank, and you also know Daniel Lubetzky as a guest shark in this current season, as well as the founder of Kind. Recently I got a chance to sit down with these two of my favorite investors, and ask them a bunch of questions about what happens behind the scenes of Shark Tank, and just general advice for entrepreneurs that you don't want to miss. I hope you enjoy this conversation.

You guys recently made an interesting investment together. I want to ask you about teaming up with other sharks in a second. But can you give us a quick overview of what the company is you invested in, and what attracted you to it?

Daniel Lubetzky: Robert, do you want to go?

Robert Herjavec: You go, Daniel.

Lubetzky: Tandem is a family-owned enterprise. What attracted me is [that] it's a mother, father, and three daughters that came together to run a business, that I think their business has a lot of potential, but it's also just the way they run it. They want to be together and work together, and the whole concept of Tandem is helping people that might not be comfortable going into surfboards by themselves, so they built a technology and a system so that you can go together with somebody else. I've seen my kids sometimes when they're going to go surfboarding and stuff, it's a really cool experience to be able to have an adult helping them out, or to have a couple together, and it's just all about sharing and being together. It's got very neat vibes. The family has built other businesses before. I think Robert and I are appropriately part of it --

Herjavec: Yeah, no. I think everything Daniel said is really true. Matt, I've invested in a number of family-run businesses over the years. I always think of Handboards, which were basically surfboards for the street, and it was run by a father, mother, and these five gorgeous California-looking surf sons. It's true to what they are. I love companies where the brand represents the soul of what they are. That's what this family is. As Daniel said, they're about sharing, they're about working together. I've done well with families, and I like the product: It's fun, it's cool, and it was fun to try out.

Frankel: Very cool. You've made a lot of investments on Shark Tank -- Robert especially -- a lot of which you've made solo, some you've made with other sharks. Some might even think you turn down other sharks who want to get in on investments with you. Not mentioning any names here.

Lubetzky: Barbara.

Herjavec: No, no.

Frankel: [laughs] What are the advantages and disadvantages to investing with another shark? In other words, why didn't you say, "No, Daniel, I want this one myself," or "No, Robert, this one's mine." Something like that?

Herjavec: You know, Matt, I think that one of the things about the show is we get the pleasure of working with great guest sharks like Daniel or any of the other sharks, and everybody has a different skill set. I think that one of the reasons our show works is we're all very unique. We have different backgrounds, but I think there's a commonality of respect for each other. If somebody wants to come in on my investment and they can add value, I'm happy to do it. It's fun. It's always fun to take a journey together with somebody, and especially when it's successful that way.

Sometimes, though, the great thing about Shark Tank is, you sit there and you see a product. You're like, "Yeah, it's nice, the other sharks want to do it. Yeah, I like him or her, let's do it." Then every now and then you see a deal and you're like, "Oh, yeah, baby, this is the one." All the friendliness and "I like the other person," it's out the window, and I don't give a bleep. I want that deal. Then somebody will say, "Oh, I like it too, I want to come in"; I'm like, "Uh-uh, there isn't enough gold in this town for the two of us." But in general, I think we like each other, and we respect the value that we bring.

Lubetzky: I think in this particular deal, if I recall correctly, I liked the family and I knew that I could help them on the technology front with Amazon and with digital sales and stuff, but I've never been in the sports space, in the water sports space, and I knew Robert had a lot of experience. I said to the family, I would only really feel comfortable if we could induce Robert to come on board. Robert could have probably done this deal without me. I don't think I would have felt comfortable doing this deal without him because I just felt that I don't have enough pattern recognition and experience in that industry.

I like Robert. Sometimes when it's a CPG [consumer product goods] company or a food company or a health and wellness company, [the bar] for me to partner with somebody is very high, because I feel like I can probably do that on my own. But there's many companies where I like the entrepreneur, but Lori might understand this piece better, or Robert might understand that piece better. The only thing I would say for entrepreneurs also: It's not always the case that having two sharks is better than one.

You really need to make sure that it's the right alignment, and that the sharks can commit, because this is a new deal for Robert and I. I think we're going to have an amazing time. Robert and I have a very fond relationship beyond Shark Tank. So I'm excited about this with Robert. But in some other deals that I've done, sometimes the dynamic ends up being that each shark is waiting for the other one to lead. Sometimes it's important if one shark is really passionate about it, it's OK to have one shark doubly passionate than two sharks mediocrely passionate.

Herjavec: I think Daniel said that really well, Matt. That's one of the things that we've seen. It's one of the common mistakes that new entrepreneurs make, is they tend to partner with people they like. There's the saying, "Oh, I wouldn't partner with anybody that I wouldn't sit on a long airplane flight with." I always try to tell people, in business, it's about skill sets, and a great team is not necessarily a bunch of people that like each other, it's a bunch of people that respect each other's strengths. I'd rather have people on my team that can complement me than somebody I want to have dinner with. That's what friends are for. That's one of the common things I hear from my friends that are starting businesses, they're like, "Oh, we're a great partnership and we get along really well. We're all great." I'm like, "Well, you're an accountant and he is an accountant, who's the sales guy or who's the sales person?" I think it's the same with the sharks.

Frankel: I want to get to what happens after the show in a little bit. But first off, when you're evaluating a pitch on the show, obviously, the pitch is longer than the little bit that we see on TV. So what are some of the things that stand out to you when people are making a pitch, and what are some of the immediate turnoffs that you see when people are pitching you an investment?

Lubetzky: Matt, I think the most important thing to say before Robert addresses your questions: People need to understand that this is a very real show. People don't believe it, that it really is our money, and that we don't know anything before those entrepreneurs show up. Everybody believes that we actually get some brief. We really don't.

It's very, very hard because you're with opinionated sharks that are asking a thousand miles a minute. I tend to be a person with presence, and I don't get easily deep. You're there in this big stage, and Robert, and everybody's jumping with questions -- and you have to really be on your toes, listening for all those patterns because you might miss a thing. It's very exciting. It's very stimulating. Because you need to understand, you need to get at the personality of the people, and their values, and their integrity, and the competitive landscape.

You're right, the ultimate edited thing is 11 minutes or 12. The interviews actually last, people on the Tank in real life, maybe 30 to 45 minutes on average, but it's not enough for making these things. That's part of the excitement of the game, and it's hard. You really need to look for signals in between the lines of like, is this person a loyal person? Do they have a hard work ethic? Do you have the right brain power in determining their personalities and the competitive landscape? It's not easy.

Herjavec: You know, if you can handle the pressure of Shark Tank, you can handle anything. [laughs] As Daniel says, even my friends -- I've been in the show for 12 years -- even my friends to this day, to Daniel's point, like, "Oh, come on, it's not really your own money. You must get a whole dossier of information on people," and I'm like, "No, they just show up," and like, "Come on. It's just us. You can tell me the truth," and I'm like, "No, that's what it is."

But in my general view, I used to sometimes feel bad for people: They come out, they get a little flustered. But at the end of the day, that's life. You don't always get to choose your timing, and you don't get to choose your cadence. Yeah, you may have a pitch, and you may want to go this way, and then Daniel is going to ask you a question completely unrelated to where your pitch is going, and then Kevin is going to cut off Daniel; you've got to respond. I think that is the beauty of it, because that's life. Life is unpredictable. Life is all over the map. Life is zigs and zags.

For me, what I look for is: I look for people that are highly resourceful and adaptable. Because anybody can work a plan, but plans can change every single day. I think that's the beauty of Shark Tank. I think the other thing is, I tend to look for people that have a high level of integrity as to why they're doing the business. I mean, yes, we all want to make money. I want to make money. Daniel wants to make money. But I want people who have a greater purpose than making money. Because I think if that's your only goal in starting the business, just to get a paycheck: What happens when you get there, and what happens when something goes bad and somebody offers you a bigger paycheck? I try to look for people who have an integrity as to the purity of why they are in that business.

Frankel: Beyond the pitches, there's obviously a lot that happens afterwards, because like Daniel just said, the average pitch is 30 to 45 minutes total. That's not enough time to evaluate an index-fund investment, let alone a private equity company. What happens after the show? Do deals end up falling apart very often after the show, when you actually start digging into the business?

Herjavec: Well, in general, I'll tell you -- it changes from year to year, but I'll give you a macro view. In general, probably about 50% of the deals close. As the show goes on, the reason they don't close has changed. Meaning, when the show first started, we had a very unsophisticated level of entrepreneur.

I'll never forget this famous story, there is a company we invested in called ChordBuddy. The guy was a great guy, a great entrepreneur. What was his name? Billy or Bobby from "L.A., baby, lower Alabama!" My team reaches out to him and says, "Can you send us your financial statement?" I'm not exaggerating: A box of receipts showed up. [laughs] Literally a box [laughs] of receipts, and we're like, "Where's your income statement? Are you audited?" He was like, "What's that?"

We don't get that anymore. Now there is a process, that Shark Tank vets a lot of those people. You have to have that level of financial due diligence, and even though we may not get information beforehand, we do get a summary of the business after the fact. What's happening today is that a lot of people, they get excited. As Daniel said, they're out there, they're nervous, stuff is throwing out of nowhere, and they're like, "Okay, I'll do the deal." Then they go home that night, they wake up the next day, and they're like, "I just sold 98% of my business to Barbara? [laughs] What am I doing?" People can change their mind; it's not binding, it's a verbal negotiation. But most of the deals are pretty true to what they are.

Lubetzky: What happens, Matt, is the way I've been taught by Robert and my mentor sharks is you really are expected to close a deal, unless what the entrepreneur represented in the Tank is not accurate, which happens sometimes. Or you discover due-diligence information that's very material, that should've probably been disclosed, that makes your investment really not warranted. Or as Robert mentioned, the entrepreneur tries to change and renegotiate the deal, which has happened a couple of times.

My first season, I think I was at a 66% ratio. This season, I think I was also more or less two-thirds that I closed. But it really is, for me, because I'm a new shark and I'm a guest shark, for me it's really important to try to close all my deals. But sometimes it gets very hard, because the due diligence may uncover stuff and you're like, "Wow, this is a different risk profile for what I had committed to." Or the entrepreneurs, like Robert says, "Well, we really don't like the deal we negotiate, we want to change it." For me, that bothers me a lot because I don't re-trade, so I don't want people to re-trade with me.

Herjavec: A lot.

Frankel: Daniel inspired this question --

Lubetzky: Can I add something? Sorry, I want to clarify.

Frankel: Go ahead.

Lubetzky: Well, Robert may be correct that it's 50%, 60% of the deals that closed, that's from the deals that are presented at the Tank. But the producers don't air all the deals. On average, let's say they film 120 pitches, but they only air 80 or 90 pitches; it varies by season. Of the deals that air, a much more significant portion actually did close -- because the producers really prioritize, if deals don't get closed, particularly the entrepreneur trying to re-trade, they tend to not want to air those deals.

Frankel: Okay.

Herjavec: It's a great point. That's a great point because I think we probably have more deals than we need to make the TV show, and we tried to limit the people that are obviously there just to take advantage of the show.

Frankel: Sure. I wanted to ask Daniel about this in particular because your company, Kind, was probably one of the most socially responsible businesses I've ever heard of. How important is ESG investing? How important is that when you are evaluating deals?

Lubetzky: On Shark Tank or in general?

Frankel: In general.

Lubetzky: I often explain this, Matt. For me, the most important thing is like Robert alluded to and I alluded to: integrity, authenticity, truth, genuineness. Now there are so many companies that just slap [on] the "I have a social mission" because they think it's something you need to check the box on, and if it doesn't feel authentic, it actually turns me off. If there's authenticity to a social mission, it turns me on a lot.

I did a deal on Shark Tank with Yellow Leaf Hammocks. I love those guys and their product is amazing. When Robert [came] to stay in my place, we have now Hammocks all over. That's why they started the business, and you can sense that when they talk, they talk with so much passion. When it's authentic, for me it's a very added reason, and that was part of what drove me to invest in Yellow Leaf Hammocks. Also the fact that as a Mexican-born American citizen, for me I love Hammocks, and I find them magical. I do think they have a lot of innovation and a lot of potential in their product, but the social mission was important.

But second to that, I would rather invest in a company that doesn't proclaim to have a high social mission, but they act with integrity, and how they do business is with good values, but they are very honest and authentic.

Then last, I would probably not invest -- and I remember a couple of pitches that I was with Robert on where people pitched themselves, and Robert will know who I'm referring to, if he thinks so -- there was a couple of guys that came on board and were not doing very well, so they started throwing out social mission claims, and it just didn't feel right, and Robert caught it and he alluded to it. Really, you want to be authentic in whatever you do; I think that's the most important thing.

But all things being equal for me, ESG is very valuable. If it really is an authentic part of the persona, and like Robert said, if you really care about something more than just "make money," you're probably going to have more staying power. It's not just that you want to invest in those entrepreneurs because they're trying to change the world, it's that they have a higher likelihood to succeed if they have a purpose beyond making money. Because when you get hit with challenges, as you always will as an entrepreneur, if you have added reason to believe, you are likely to have more staying power.

Herjavec: It's a great point, Daniel. You said that so well, because that's what people misunderstand. It is the "shark tank," it's not the guppy tank. I'm not investing in you because of your social mission, or because you want to do good; I don't need you to have integrity because I'm on a holier-than-thou plane. It goes to exactly what Daniel said: "People with greater integrity have longer staying power." Because business is about overcoming objections, and you're going to get hit, you're going to get hit every day. And eventually, if your only purpose is "got to make a buck, got to make it quickly," it's going to wear you down, and you need people that are going to stick it through. That was really well said, Daniel.

Frankel: Just a fun question, real quick. You guys have both made so many investments, both on Shark Tank and privately. What would you say is the No. 1 all-time favorite company you've invested in? Not necessarily the most successful monetarily, but what has been the company that you've been the most passionate about as an outside investor?

Lubetzky: Yeah, so we can't count Kind?

Frankel: No, other than your own businesses.

Lubetzky: It's very hard to answer that. I can try to answer by throwing out a name, but it's very hard because they're all your kids and you love them all. Also, they are at different stages. But I'll just quickly say, I love this company called Ellenos. Their motto is, "The Greek yogurt that makes ice cream jealous." You normally try Greek yogurt, and say eh, it's good for me but it's got too-sour tones. This one is, you can't stop eating it. It is such an experience, every mouthful. I love their product, and they remind me a lot of Kind in terms of their potential. I think I've sent you some, Robert -- if not I will -- and I can send some to Matt.

Herjavec: It's fantastic. Yeah. I would say, to Daniel's point, I love them all, but I would say Tipsy Elves, from a Shark Tank perspective. It was probably the first large investment I made in an area I didn't really understand. I think I was just going through this phase of, "How many more sweater and food companies [laughs] are going to come on this show?" I just like the guys. I thought they were good guys. I believe in what they were doing, and I love the product. We've seen it all. That was a company that was almost on the verge of going away. They almost ran out of money because of cash flow issues and inventory challenges, and now we're at over $100 million. It's the entire life cycle.

Lubetzky: But Robert, Tipsy Elves is a fascinating thing. I remember seeing the episode, and I'm like, "What is this guy thinking? Why is he making all of this?" and it turned out to be one of the best all-time investments. It gives me humility to see that. That turned out to be an incredible story. Was it the strength of the entrepreneurs?

Herjavec: I think, Daniel, I was just having a moment where I was investing in stuff that I thought I understood. I think it was part of my education and journey as an investor. I think I felt if I invested in something, I've got to really understand it to the point I can run that business. That was probably a little bit of my own arrogance, because I'm a very technical cybersecurity guy. I looked at them, and they were selling $600,000 a year in inappropriate, ugly Christmas sweaters, and I didn't understand it, but I believed in them. I realize it's OK if I don't understand it, if the fundamentals are strong and the entrepreneur is strong. Like every investment, you get to a point, you either go forward or you don't, and I just went forward. But since then, I've been invested in quite a few lifestyle -- I would call the board, the lifestyle-type of leisure investment. We've done a number of those, and done very well with them.

Frankel: Those are some of your favorite investments you've made. I tend to think of humility as a very important quality for investors to have. In other words, learning from your mistakes. From each of you, what was one of the worst investments you ever made, and what did you learn from it?

Lubetzky: Do you want me to start, Robert?

Herjavec: Well, I've never made a bad investment, Matt, [laughs] so I don't really understand. I don't understand the context of this question. [laughs] I think it goes back to I've had to learn to leave my...humble, going back to your humility and humbleness and believing in the entrepreneur. I think I come into the world from a very, very technical world that's highly complex, so very few people understand what I do. I think that was a little bit of my own filter and arrogance I applied. I felt like I needed to know other things as well as I know what I do every single day, and that's not true. I think as an investor, my job is to support the mission of the entrepreneur and help guide them, not necessarily to operate their business.

Lubetzky: I'll tell you two thoughts on that, Matt. First, the investment that I've learned the most from that was bad was my mistakes, and I love this company that I started right after law school called PeaceWorks, to use business to bring neighbors together. In terms of social mission, it was incredible. In terms of grit, it was incredible. But in terms of wit, it was just not there. [laughs] I didn't know what I was doing, and I was spread way too thin. And I was starting ventures in Indonesia between Muslim, Christian, and Buddhist women starting a line of sauces; and in Sri Lanka, and in Chiapas, Mexico, and in South Africa, and in the Middle East. Our total sales were under $2 million, with ventures all over the world. In retrospect, I was a 26-, 27-year-old that was in love with this social mission of using business as a force for bringing together, but I was just having fun traveling all over and things, and no discipline, no focus, so it taught me about focus and discipline.

From the outside, because that's not truly answering your questions: Those were my mistakes. But from the outside, the investments that I've regretted the most are when I get friends to give me a Mexican-Jewish guilt trip to invest in them because, "Come on. Come on. Come on." I hate that. [laughs] If I need to help a friend, I will, and that's a separate thing. I will help them. But I'm really trying to invest because it makes sense.

The ones that I regret is -- unlike Robert, I have not gone to the comfort of going to places that I don't understand at all. And when I've gone so because a friend asked me to, almost always I'm like, "Eh." I knew in my gut that I didn't know what I was doing, and I wasn't excited about doing it, but I did it as a favor. I think I want to help where I can to my friends, and be there for them, but that comes from a different bucket of investment disciplines to cover.

Frankel: Well, it is 3:30. I think I have to let you guys go now. I don't know how hard of a stop you have, but I imagine you guys have to be let go pretty soon.

Lubetzky: I have a couple of minutes, but I'll defer to Robert. He's more busy.

Herjavec: Yeah, the same. I got a couple of minutes.

Frankel: Sure. Last thing I wanted to ask, and this shouldn't take very long: If you have one piece of advice you can give aspiring entrepreneurs out there listening to this show, what would it be?

Lubetzky: Do you want to go first, Robert?

Herjavec: Sure. Thanks, Daniel.

Be great. Be great. The world is such an incredible place. You can do so many things. Every day you wake up is like a miracle, and the world is such a fascinating place, and it can be so hard. If you're going to play the game, play it to be great. I just think, go for it. People overthink it, and they plan it. Be great. Do the things that make you excited. Live your life like it's your only life, because it is.

Lubetzky: I love what Robert said, and it reminds me of a piece of advice I once got, which is: Whatever you do, do the best you can. That's a very good piece of advice.

My piece of advice would be: Talk to yourself and make sure you understand what gives you meaning, because in today's day and age, we're so overwhelmed with devices and email and shmemail and texts and this and that. [laughs] You don't have time to have self-reflection. As a kid, I used to walk a couple of miles when I had to take the bus or something. I was forced to just be with myself and talk with myself and think to myself. Today, whenever I have a minute, I'm checking my phone, I'm doing this.

You need to find the time to reflect and to have conversations with yourself and understand what makes you tick, what gives you meaning. Because if you're able to understand what gives you that purpose, you're going to be far more likely to be invincible, because you're going to pursue something for the right reasons. Not just to make money, but because you really care about what you're doing, and it's just going to give you so much more staying power.

Herjavec: Daniel, what's shmemail? [laughs]

Frankel: I was wondering the same. [laughs]

Herjavec: Is that a new social platform I should be on?

Lubetzky: It's called Mexican Jewish lingo. It's adapting from my dad's lexicon.

Frankel: Well, Robert and Daniel, thank you so much for joining us today. I think we all learned a lot. That was a great conversation, so thank you guys so much.

Lubetzky: Thank you, Matt. Thank you, Robert. I love working with you.

Herjavec: Thank you, Daniel. Great to see you.

Frankel: That'll do it for us this week, folks. Remember, you can always reach out to us on Twitter @MFIndustryFocus, or drop us an email at [email protected].

As always, people on the program may have interest in the stocks they talked about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

Thanks, as always, to Tim Sparks for putting the show together for us, for Robert Herjavec and Daniel Lubetzky. I'm Matt Frankel. Thanks for listening, and we will see you next week.