How a Shark Thinks, Invests & Teaches Kids About Money

I had the great pleasure of hosting a second Business Owners Exchange (BXO) event at CORE: club on Monday and this time our speaker was Kevin O’Leary from Shark Tank. Continuing with our theme of provocative topics, Mr. Wonderful spoke about the impact that sudden wealth can have on a founder’s children and how to manage that. But before that, there was plenty more the crowd wanted hear about so here are some of the highlights I noted: 

  • SharkTank isn’t just a TV show, it’s the most successful venture-investing model in history. Why? Cost of customer acquisition. In most companies, this is a major expense. For anyone appearing on SharkTank it’s essentially zero. It’s the reason Shutterfly took out GrooveBook (season 6) – to eliminate a competitor eroding the low end of their market with an unfair cost structure. It also explains why a typical venture fund expects 2 out of 10 deals to return capital and SharkTank sees 5 out of 10 return capital. And as Mr. Wonderful is fond of saying, “It’s not an investment if it doesn’t return capital.”
  • Of the 32 companies he is invested in via SharkTank, the most successful have one thing in common: they’re all run by women. He attributes this to their ability to set short-term, achievable goals and then reach them, which energizes their teams. The men by comparison, often shoot for the stars, falling short and demoralizing everyone.
  • SharkTank was cancelled each of it’s 1st three years. But he knew it would be a success (now in year 7) when someone recognized him in an airport bathroom and said he was a fool for “buying 51% of that deal in the first round!”
  • über is a fascinating story but it’s not worth $6B. He’ll use Lyft just as frequently and they will all be replaced by driverless car services in 5 years or less anyway. Similarly, Amazon can exist with little profit today because their cost of capital is zero. But watch out for the day investors come looking for a return on that capital.
  • He sees no short-term recession and believes real estate essentially stays flat for a long time rather than crashing again.
  • When asked about the election, he said he and Trump share a boss in TV producer Mark Burnett (Shark Tank and the Apprentice). He said he judges a man by his children and Trump’s kids are smart, hardworking and even tempered. Of his 32 business owners, not one of them is supporting Hillary in the election and he thinks Trump will win. 

On the main topic of managing a founder’s wealth and how to raise kids in the wake of an exit, he followed the lessons learned from his mother.

While not an entrepreneur, she diligently squirreled away 10% of every check, buying large-cap, dividend-paying stocks and bonds. She never touched principal and always believed “If I invest, I need to get paid regularly.” She also demanded self-sufficiency from her kids, telling Kevin, “I’ll support you through college, but after that, you get absolutely nothing. No runway. Zero. You are on your own.” He didn’t believe her, and learned the hard way at first.

So, when he sold The Learning Company to Mattel for $4B becoming fabulously wealthy overnight and was bombarded by family and friends, he had strong notions of how to handle it.

First, his trusts mimic the self-sufficiency his mom instilled in him. His kids are supported through college and then they get absolutely nothing. Same deal applies for their kids as well (supported through college, then nothing) and on through the generations. This preserves principal and stimulates their personal growth. A similar rule applies to his charitable giving. He and his wife pick 5 charities and support them for 5 years and then rotate out to new organizations. None are supported for longer than that. 

Second, he set a specific set of rules around the kind of investment vehicles he wanted his non-venture wealth invested in. Among the parameters: 

  • Holds dividend paying assets only
  • 50% equity, 50% fixed-income
  • 50% U.S., 25% Asia, 25% Europe
  • No position is more than 5%
  • No sector more than 20%
  • Must own all sectors
  • Targeted to pay 5% in perpetuity

But he simply couldn’t find this kind of vehicle in the market. He found 49 dividend-paying ETFs but all were market cap-weighted. That meant Apple, for instance, would be 14% ­of holdings, and that’s too much by his rules. So he called the CEO of FTSE Russell designed his own ETF (OUSA) which follows those rules above. It’s publicly traded and anyone can buy it. 

So there you have it. Yet another informative and entertaining evening at CORE: for all our founders and guests in attendance.

One last thing that struck me was this: Kevin O’Leary is clearly focused on the bottom-line, but everything he conveyed that evening was a “story” grounded in deeply held “values” – illustrating once again what makes a great brand.

In this case, Mr. Wonderful’s.