Kevin “Mr. Wonderful” O’Leary—best known for his wisecracking turn as the most cutthroat investor on ABC’s hit series Shark Tank—has never been one to settle for mediocrity. From a young age, O’Leary aimed for business excellence, launching and investing in a wide range of innovative companies. Today, he’s a multi-millionaire entrepreneur. But that doesn’t mean he’s done making waves.
So it’s no surprise that one of O’Leary’s investments just made Shark Tank history. The winning investment, photo app GrooveBook, became the show’s first venture to be acquired by a public company when Shutterfly bought it for a whopping $14.5 million this past November.
I recently sat down with O’Leary to talk about this game-changing photo app, his current investment mindset, and his predictions for business in 2015. Along the way, he offered up some hard-hitting advice for entrepreneurs that only Mr. Wonderful could give. Our conversation, edited for length and clarity, follows.
What is new for Kevin O’Leary?
“What’s new is my first major exit on Shark Tank: The sale of GrooveBook to a public company in that space. So far, it’s the largest cash exit ever on Shark Tank. We’re going to get a huge media splash out of this, and it couldn’t have happened to nicer people.” [Ed. note: GrooveBook is featured in the thirteenth episode of season five, which aired on January 10, 2014.]
Why do you think GrooveBook has been so successful?
“GrooveBook struck the heart of America in a way we’ve never seen. It was such a simple product, and it moved so geometrically, quickly. I mean, it went from nothing to 300,000 subscribers in a month. We’ll see if somebody can beat that record on Shark Tank, but I think it’s going to be a long record.”
What will change about the marketplace in 2015?
“Rising rates. We’ll see the cost of capital going up for the first time in 17 years. What I’m anticipating is a small rate hike sometime in the first quarter of 2015, which means that debt will be more expensive and may clip the rise of housing. That’s a good thing, because it signifies the economy is recovering.”
How would a rate hike affect small- and mid-sized businesses?
“It wouldn’t. The problem currently with small- and mid-sized businesses is that we’re in a very anti-business regulatory environment. Taxes are too high. We’re not competitive anymore. Even the Canadians have a better deal, which was never the case for 100 years, so we’ve really gotten off track.”
What do you look for when investing?
“I want to find more Shark Tank deals because Shark Tank, when measured by the metrics of venture capital, is the number one venture capital firm on earth. Let me explain. If you look at venture capital over decades, two out of 10 deals make money. That’s been the same for 50 years. On Shark Tank, we’re closing in on four out of 10 deals, so that’s 40 percent of returned capital. The marginal company is better off on Shark Tank because it’s getting millions of dollars of free advertising.
We’ve got unlimited capital, the sharks are wealthy, we’ve got nine million people watching the show, we’ve got everybody with a great product wanting to come on there. It’s a perfect storm, and so there is no venture capital firm that can eat with us. I feel sorry for all of them.”
What’s your long-term outlook on the economy?
“I think we’ll have a slow-growth environment for quite a while to come. Capital is leaving North America and going to Asia. China will emerge as the number one economy on Earth in 20 years.”
What’s your focus for 2015?
“I want to take 20 companies that are in my portfolio now and try to fine-tune them. I’ve had them for many years now. I have to start deciding which ones to weed out and which ones to keep. I’d like to close another six to 10 deals this year because I think we have a great profit for companies on Shark Tank. I’m going to be selling some of my companies in this calendar year, so I’m busy.”
What’s your biggest piece of advice for companies in 2015?
“What investors want these days is stability and liquidity. If you come to market saying you’ve got to wait seven years before you can make any money, it’s not exciting anymore. Nobody likes that. I like fast-moving ideas that can prove their traction in the first couple of years. That’s just me, but the market’s that way too. There’s a premium on CEOs that can deliver results on a short-term basis.”
What’s your advice for small- and mid-sized businesses?
“Number one, I would start reducing debt if I had it. Rates will rise over the next three years, so the cost of capital will go up, the cost of servicing your debt will go up. If I have the opportunity to reduce that or remove it, I would do that right now. Because, I mean, it’s been so benign for so long, I feel that’s going to change.
Number two, I would look to continue to optimize productivity. I think a lot of companies are becoming a little fat lately, and it’s been so easy-going. I would be trimming fat now and getting lean and mean.”
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