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.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: