Mad Mom Isn’t So Crazy! (Episode 2.2)
By Shark Tank TV Show on Thursday, April 7th, 2011 | 3 Comments
Kiersten is a stay at home mom who started her business to support her family. She is having great success with her innovative toy boxes, but needs capital to take advantage of her expansion opportunities
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.She came up with the idea after looking for a toy box that would fit in with the modern furniture in her home. Finding none on the market, she learned carpentry and began building her own.
She came in seeking $90,000 for 25% equity, a pre-money valuation of $270,000.
Curiously, there is no indication that her husband is participating in the business, although she says he is supporting her. Her ideas go far beyond toy boxes – some of the displays had complete bedroom furniture collections and she needs the capital to buy raw materials.
She had revenues of $34,000 last year and has demand from 17 companies. She is a “do it myself” person, which is a valuable trait to start with, but something she will need to overcome to grow the business.
She wants to set up manufacturing with an Amish company in Ohio, her home state. She can expand her capacity from 3 units to 1,000 units per week with this outsourcing arrangement.
Barbara thinks she is grossly underestimating the cash required to expand the line and the volume (we agree!) and she was out. Daymond is “petrified of the furniture business” and was out, too. Kevin H. didn’t see a compelling value proposition, so he was also out.
That’s when the fun began!
Kevin O (Mr. Charming) loved the story and made an offer: $90,000 for 33%, with a 7.5% royalty until he gets his money back.
Robert countered, with the difference being that he didn’t want his money back right away, correctly saying that small businesses needed to retain as much capital as possible to fund their expansion. We completely agree (and said so last week).
After some bantering, Kiersten accepted Robert’s offer over Kevin’s. We think she made the right choice!
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Our Analysis:- Presentation: She was poised and passionate, even tearing up a bit when speaking of the reasons she started the business. Well done!
- Business Strengths: The story is great, the designs are innovative, and she has significant interest.
- Business Weaknesses:. We are not sure how big she can get. The story will be greatly appealing to some segment of the market, but soon she will be competing with Ikea and other mass market furniture manufacturers. The good news: she can hit a home run by becoming a profitable $10,000,000 a year business.
- The Deal: She asked for $90,000 for 25% equity, and got the money with deferred repayment of the principal. She was thrilled! . After building 328 toy boxes with her own two hands, she can finally afford some help.
- Sharks: As usual, most of the sharks were out early, and there was some competition among them. This time, they only nibbled on each other.
Next Step Suggestions:
- Get the outsourcing deal going, and ride the wave of the toy boxes. Don’t expand until you have captured a lot of customers with your flagship product.
Lessons:
- Moms can be great entrepreneurs, and
- Necessity is the mother of invention!
Followup:
- You can find out more at http://www.modmomfurniture.com/. She is selling via seventeen other outlets (way to go!), and hasn’t yet expanded her product line.
(If you are interested in raising capital for your business, visit us at www.AngelNetwork.com)
First Defense Nasal Gold! (Episode 2.1)
By Shark Tank TV Show on Friday, April 1st, 2011 | No Comments
Fourth Guest: Joe Moore, First Defense Nasal Screens
This was probably one of the most exciting negotiations in the history of the Shark Tank!
Joe was looking for $500,000 for 10% of the company, a pre-money valuation of $4,500,000. That’s a lot! The money is for inventory. He and his partners have already invested almost $1,000,000, $600,000 was from Joe personally .
First Defense Nasal Screens have been clinically proven to reduce diseases from inhaling contaminated air. They are lightweight and non-inserted. They reduce the inhalation of nasty things (molds, allergens, pollutants, etc.) by up to 99%. His tagline was “Don’t get sick, just peel and stick”, and he has a patent pending status in the US, Canada, and Europe.
He said he had already “sold” 1.7 million units, which really meant that he had a purchase order for that quantity (the products were not on the market at the time of the taping). Most excitingly, he has contracts for $8 million over the next six years from United Arab Emirates! And he had the contract at his fingertips.
Kevin, in his usual charming way, said that “you don’t sound like the bozo I though you were!”
Barbara asked a great question: “What’s to stop you from takin in the air through your mouth”, and Joe was quick to reply “90% of the air you take in is through your mouth, and many viruses and bacteria only live in the nasal passages.” Great answer!
Robert asked, “why not license it?”, and Joe replied that he tried that, but the drug companies would just put it on the shelf. Why sell a product for a dollar that eliminated the need for products that cost so much more?
Barbara thought it would be a tough sale, requiring a lot of education and she was out. That's when it got really interesting.
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Watch the episode for yourself to see the fireworks, but here’s a summary of what happened next:- Kevin offered $500,000 but wanted a 15% royalty on every unit sold until he recouped his $500,000, and 20% equity. He tried to push the deal saying that the other sharks were out.
- Mark said “not necessarily true” and offered to work with Kevin. OK
- Daymond offered $800,000 for 30% and a 10% royalty
- Kevin changed his offer to $1,000,000 for the whole company right now (which was the lowest offer of the day).
- Daymond countered with $1,000,000 for 30% and a 10% royalty until he recouped his investment.
- Robert offered $2,000,000 for the whole business, with Joe keeping a 10% royalty. Joe said he was interested, but not for $2,000,000. Robert countered with $4,000,000, the largest sum offered in Shark Tank history!
- Joe, God Bless Him, had the courage to counter with $5,000,000 and 15%. Robert said no, and was out. That left Mark, Daymond, and Kevin.
At that point, they sent him out of the room and negotiated amongst themselves. Kevin shared the results: Daymond was brought into the deal, and together with Mark, the offer was for $750,000 for 30% and a 10% perpetual royalty. Joe negotiated for season tickets to the Mavericks and the deal was done!
Our Analysis:
- Presentation: Joe was rough, but very passionate and very strong. Come to find out, he was a cancer survivor and a Marine Corps veteran – and it showed.
- Business Strengths: The passion of the owner, and the patents and orders. Intellectual property rights and market traction are key to attracting investors.
- Business Weaknesses:. The product probably won’t appeal to people focused on their self-image.
- The Deal: the original offer was $500,000 for 10% of the company. Kevin wanted $500,000 for 15% of revenues, then 20% of the company. Robert
- Sharks: The offers and counteroffers were outstanding! Kevin was his usual “sharky” self, insulting Barbara, Robert, and Daymond by saying the Mark and he were the only ones who had sold a company for a Billion, inferring that they were by definition much better partner candidates.
Next Step Suggestions:
- Fullfill those orders and make a run at the other mid-eastern countries.
- Find a way to make a similar product that is inserted into the nose (at least a little bit) so it appeals to those who are concerned with their looks.
Lessons:
- Investors love a company that has a lot of pending orders, patents, and has already made a significant investment.
- Be prepared – having the $8 million contract in his hands for review was a very smart move.
- Be very careful of royalty agreements – they suck up cash needed for growth, artificially increase the price of the product, and can take up an enormous part of the profits. (Contact us for a more detailed explanation if you are considering a royalty agreement as a part of your capital strategy.)
Followup:
- You can learn more about First Defense Medical Systems at www.filteryourlife.com and 877.MyAir.09. You can buy them online for as low as $10.
(If you are interested in raising capital for your business, visit us at www.AngelNetwork.com)
Vurtego – Flipped Over and Bounced Out (Episode 2.1)
By Shark Tank TV Show on Thursday, March 31st, 2011 | No Comments
Third Guest: Brian Spencer, Vurtego Pogo Sticks
This segment had one of the most impressive openings we have ever seen with professionals doing flips on pogo sticks. We especially liked it when the two athletes turned back flips in unison. Wow!He was looking for $500,000 for a 20% stake, for a pre-money valuation of $2,000,000.
They have “reinvented the pogo stick” and have sold 7,000 so far. Kevin was surprised that no one had broken their neck so far, and we were too! Brian said they were “deceptively safe because you weren’t dealing with speed”, which was just plain nuts. You can easily break your neck with a fall of just a few feet!
The retail price was $330 with a cost of $100. There was not enough margin in that price strategy. Mark said he thought it should sell for $600 or so, and we agree. With that kind of margin, you can find a lot of routes to market and offer a lot of creative discounts. There was definitely an opportunity to sell a more premium brand.
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Brian said “in order to make money with this, we need to approach the masses” and we totally disagree with him, siding with the sharks. Mark was very correct in saying that when he goes mass market, he is a lot less “cool and hip”. All of the sharks agreed with him.Barbara was out because she was a mom, and thinks it is a miracle that someone hadn’t been killed already.
Mark said “When you try to please everybody, you end up pleasing nobody” and he was out.
Kevin said to sell it for $1,200 and make an obscene profit, and he was out.
Daymond said that “you don’t need us” and he was out. Robert said mass marketing the concept was a very bad idea and he was out.
Our Analysis:
- Presentation: Brian was very “cool and hip”, matching the brand of his product.
- Business Strengths: The product appeals to thrill seekers currently doing tricks on skateboards and BMX bikes. (Think Extreme Games). They have a strong foundation.
- Business Weaknesses:. The idea to go mass-market is a bad one, and there is the obvious liability risk that extreme sports suppliers have to deal with.
- The Deal: He wanted $500,000 for 20% of the company. here were no counteroffers and there was no deal.
- Sharks: All agreed that mass market was a very bad idea for this product. We agree too.
Next Step Suggestions:
- Raise the price, establish competitions around the country, and go for the cool!
Lessons:
- Premier brands can’t also be mass market brands. They should carry a premium price and appeal to a much smaller marketplace. Selling a premier product to a small market at a huge price can make a company very successful.
- I loved Marks statement: “When you try to please everybody, you end up pleasing nobody”.
- You have to have a lot of margin in your products. The general rule of thumb is that your retail price should be at least 4x your cost to manufacture.
Followup:
- You can learn more about Vurtego Pogo Sticks at www.vurtego.com. They still sell for around $330.
(If you are interested in raising capital for your business, visit us at www.AngelNetwork.com)
The Opportunity That Smelled (Episode 2.1 )
By Shark Tank TV Show on Wednesday, March 30th, 2011 | No Comments
Second Guest: Matty Sallin, Wake N’ Bacon (San Francisco)
Matty has an alarm clock that warms up pre-cooked bacon on schedule, since he figured out that many people like to wake up to the smell of bacon. He came up with the idea as part of a graduate school
project, and his focus group were fellow students.
project, and his focus group were fellow students.He asked for $40,000 for a 20% stake, for a pre-money valuation of $160,000.
He reports that he has been inundated with orders, saying it “went viral”, and that he has been inundated with “hundreds and hundreds of people who are begging for one”. He is raising capital to produce the prototype, (which is strange), and from there he will pitch to retail partners, manufacturing partners, and investors.
He was pretty proud of his conceptual drawings, especially the cork screw pig-tail-like cord. He said, rather boldly, that “I have thought of everything!”. Well, not exactly.
He had no production estimates. Kevin thought this was inexcusable. He said he had “…a pig box that was going to catch on fire and he would be sued into the stone-age!” He was out.
Barbara thought people really wanted to smell bacon in the kitchen, not next to the bed, and she was out. Robert was out with explanation, as was Daymond, although he “really liked bacon”.Mark asked about the minimum production run, which would be 10,000 units, costing about $130,000. So he really needed $170,000. Mark liked the concept, but was out.
Kevin finally offered $200 for the “pig box”, which he would place in a museum of bad ideas, thereby providing a service to the world. (We thought this was hilarious!)
Our Analysis:
- Presentation: Matty was charming and humorous, but we could see that he was a bit nervous, especially when Kevin asked about the product catching on fire and burning up a sleeping couple! He was also a bit sheepish when Mark suggested that he should have asked for $170,000 (with which we disagree), but regained his composure and changed the offer.
- Business Strengths: This could indeed be a novelty product.
- Business Weaknesses:. There is a lot of risk of having heating elements this close to sleeping people, and his idea is obviously not attractive to the Jewish and vegetarian markets! He thinks that because the Easy Bake Oven found a way to market, he can too. The bacon has to be pre-cooked, which makes it pretty darn inconvenient.
- The Deal: Matty asked for $40,000 for 20%. There were no counteroffers and there was no deal.
- Sharks: Kevin was his usual cynical self. There was no serious sharking going on for this idea.
Next Step Suggestions
- Find another dream!
Lessons:
- Your college buddies might not be the best focus group. Matty should have realized this was a novelty product from the start, and be better prepared with projections.
Follow-up:
- We looked up Wke N’ Bacon online, and the idea is still out there. We are surprised.
(If you are interested in raising capital for your business, visit us at www.AngelNetwork.com)
This Company Wasn’t Fit (Episode 2.2)
Second Guest: Stacy Erwin, Fitness Stride
(If you are interested in raising capital for your business, visit us at www.AngelNetwork.com)