Monthly Archives: October, 2015

Shark Tank – Season 7 Episode 3 Recap and Analysis

Pitch #1: Foot Cardigan, a sock subscription service. (Website)

Ask: $250K for 10%.

Cathy’s thoughts: These guys were sharp, on trend, great numbers, great presentation, and great answers. They came prepared with a viable business model and when you do that in the tank, a feeding frenzy is inevitable. Daymond, because of existing partnerships, couldn’t make an offer outright without their approval, eliminating his advantage as a clothing guru.

Cathy is: in with what I feel is the first offer I’ve been able to make all season that would have been the best valued, though not necessarily the most strategic. I would have given them the button (exactly what they asked for), $250K for 10%, but I would have asked for a preferred return until I recouped my initial investment. I think their numbers and trajectory justified the 10% offer. I think they’ve almost proven their model, but not quite. If they had come into the tank with 20,000 subscribers instead of 6,000 and their 7% flip rate, I wouldn’t have even bothered with the preferred return. The Dragon’s Den effect is also in play, so my risk would have been somewhat offset. Would they have taken my offer? Nah. I think it might have leveraged a better offer from Mark Cuban and Troy Carter though, maybe given these guys a 5% discount.

Result: Troy and Mark chopped 20%. Best pitch of the season so far.

Pitch #2: ValPark, an app that streamlines the valet parking experience. (Website)

Ask: $300K for 20%

Cathy’s thoughts: I hate investing in apps, but I certainly see the merit in this. I think Troy unfairly got hung up on how someone was going to “steal his lunch” from his home location. It sure sounded like the company founder was juiced into it with no potential to have his territory poached by a competitor that, frankly, is not existent at this time. A hypothetical competitor wouldn’t go to this gentleman’s partner (an equity holder in ValPark, mind you) to underbid a company he has a stake in. I really don’t understand why he based his reasoning for passing on this around that.

I have two major problems with this pitch. #1, he way over-valued the company. The cash-in is over ten times the existing revenue of the company, and the valuation is over fifty-times what the company is making. Absurd. #2, the company’s ceiling is indeterminable because it’s completely dependent on getting the top contracts and full exclusivity with unknown partners in major cities across the US. This with a product that really can’t be protected from competition. I like to invest in a company with a moderate to high ceiling and a clear trajectory. At the moment of the pitch, ValPark has no trajectory. It has its location, which takes in under $30K a year, and that’s it. Really, Wayne of ValPark doesn’t need an investor. I feel he has spent his money wisely on the app. He simply needs to, as my father would say, tie your shoes and pound the pavement. He needs to go out and make sales calls. He needs to secure long-term exclusivity with as many major valet parking facilities as possible, as fast as possible. An investor’s ability to help expedite will not be enough to justify further dividing your company, which is slicing the pie thin as it is.

Cathy is: Out.

Result: No deal. After all the Sharks but Daymond went out, he offered ValPark the button if any Shark would come back in, but none would. Good luck Wayne. Just start making sales calls and get ready to rack up frequent flyer miles.

Pitch #3: Two Guys Bow Tie Company (Website)

Ask: $150K for 10%

Cathy’s thoughts: Another really great pitch. These guys had a fun, high-energy pitch and wonderful numbers. It deeply annoys me that it never came up (or at least wasn’t aired) what the money is for. According to Shark Tank Blog, they’re opening a B&M in Tulsa later this month. I don’t think expanding into retail locations is the proper path for this company, at least this early into the company’s life. That is, unless they’re simply creating a storefront at their manufacturing facility, which would be sweat off the brow. Annoyingly, Daymond (who competes with Lori for the worst poker-face of the Sharks) clearly wanted it from the get-go and is the perfect partner for them. None of the other Sharks had a chance.

Cathy is: Out.

Result: Daymond and Troy chopped 17.5% with a 10% recovery-based royalty. Great deal for entrepreneurs. They’re going to make a lot of money I suspect.

Ask #4: Nerdwax, glue to prevent your glasses from sliding off your face. (Website)

Ask: $80K for 20%

Cathy’s thoughts: I guess I’m luckier than I realized because my glasses don’t wiggle or slip on my face. I quite liked this pitch, and I agree they need working capital and not debt. It is a single-SKU, but if I had been there I might have taken a flyer on it. I think the $10 price point is too high. They certainly have the margins to put a smaller price point that makes them more attractive for placement at the checkout stand as an impulse item. $6.99 to $7.99 feels a lot better than $10 for that objective. I’m just struggling to structure a deal that would let them keep their baby while giving me enough return on my investment to make a relatively modest risk worthwhile.

Cathy is: taking a flyer if I had been a Shark. $80K, 25%, 10% preferred royalty until I recoup, and preferred creditor status so that if they need a loan (and they will if a major chain like a Walgreens or Rite Aid picks them up) it’s me arranging it for them. I think I would have had a deal.

Result: No deal. Troy offered them an operating line with a 10% equity pick, while Kevin offered venture debt line with a 3% pick. These guys had no debt and at this stage, before they have a national distribution deal in place, taking debt makes no sense. Nerdwax wisely passed. They’re going to do very well with the Dragon’s Den Effect in play. Good for them.

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Shark Tank – Season 7 Episode 2 Recap and Analysis

Pitch 1: O’Dang Hummus

Ask: $50K for 10% ($500K Valuation)

Cathy’s Thoughts: I really love up-tempo, high-energy pitches. Full blown feeding frenzy on this one, with four sharks presumably in (Mark’s offer never got thrown). The refrigerated section of the grocery store is America’s top retail battleground. It’s the most competitive, cutthroat landscape in the fast paced grocery industry, and there’s very, very little shelf space for start-ups. But Kevin O’Leary, who owns astronomical amounts of clout due to owning some of the country’s largest seafood debt, showing interest makes this interesting. I agreed with Kevin in you have to choose either the three Hummus SKUs or the two Salad Dressing SKUs. Great pitch, modest ask.

Cathy is: I would have made an interesting offer to Kevin: bump the offer to $75K for 20% that we chop, but I’ll assume the production risk. He would have had no reason to cut me in otherwise. I think Kevin would have taken it.

Result: Lori and Robert chopped 25% for 50K. Mark Cuban never got to throw out $100K for 25%, though if he had genuinely been enthusiastic about investing, he would have put his offer out and not paused long enough for a deal to get done.

Pitch 2: Splikity, a password solutions app.

Ask: $200K for 10%.

Cathy’s thoughts: like Mark Cuban, I completely lost interest when I found out these guys had no background in technology or software. I don’t feel Mark properly articulated why his would be a typical reaction: because you want the people who have the ultimate, final say in a company’s direction and decisions, including those related to security standards, to be tech guys. You don’t want it to be people who might not spend their working hours pouring through tech journals and trades to make sure all their future decisions are informed. It’s not that these guys couldn’t be trusted to make proper decisions. It’s that there’s no assurance of it. 10% doesn’t give you enough board seats or any protection from the decisions of the founders. If their decisions aren’t based on the market necessity but rather profit necessity, you have very little means to right the ship. I wouldn’t have bothered throwing out an offer for 50% either.

Cathy is: Out. In addition to all the stuff I just mentioned, apps can be tough to monetize (and always cost a multiple of what you think they will) and there’s not a ton of proprietary technology behind it.

Result: Kevin offered $200K in venture debt, meaning they would have to pay $600K. Kevin would also endorse the product under one of his brand names for 5% equity. Terrible offer that I would have been shaking my head at. No deal.

Pitch 3: Mikki Bey Eyelash Extensions

Ask: $300K for 20% ($1,500,000 Valuation)

Cathy’s Thoughts: I felt terrible for Mikki because I felt she had no chance of avoiding rejection. She has a viable business for herself that was among the least investable they’ve ever had on the show. Her numbers and the business as it exists today leave no room for anyone else. There was barely enough room for her. I feel her presence on the show was a casting failure since there was no way you could spin the possibility of landing a $300,000 investment based on her revenue and her business plans. It almost felt like she made it in front of the Sharks for the sake of sport, and I don’t like that.

Cathy is: Out. I would have also advised Nikki to not put any money towards patenting her process. Patenting a cosmetic process is a sucker’s game that offers very limited protection for far too much money.

Result: No deal, probably the least viable idea ever put in front of the Sharks.

Pitch 4: Loliware, edible cups.

Ask: $150K for 10%, revised to $600K for 25%  to complete a round that began before the show taped.

Cathy’s thoughts: Another feeding frenzy, as these girls came out with a new concept. I have to admit, I would have liked to have tried the cup with just water to see how much of the flavor bleeds into the beverage being drank. Does the cup require recipes tailored to it? That wasn’t ever discussed because the offers suddenly started flying. Offers that I would never have been cut into.

Cathy is: Out, assuming nobody offered to cut me in on their deal (they wouldn’t have). I would have considered upsetting the apple cart by offering to back their current round of $600K that was 30% complete during the taping with an operating line of credit at a standard interest rate, but such a thing would be uncharacteristically (ha) vindictive of me and I would never think of such a thing.

Result: Mark and Barbara chopped the 25% for $600K.