CNBC’s Shark Tank episode aired April 15, 2014-Part 2

This week’s episode of Shark Tank originally aired March 25, 2011. Two of the entrepreneurs appearing on this show made my Top 10 List for Season 2…..Nikki from Toygaroo and Joe from First Defense. No wonder CNBC showed this episode! The following was my original analysis of the entrepreneurs appearing on this episode……..

This blog reviews each episode from the Entrepreneur’s point view and announces the winners of this week’s “Sharky Awards”. At the end of the season, a season ending award ceremony will be conducted.

Platinum Sharky…..Nikki from Toygaroo.

This is a great example of creating a business where a)the founder has first hand knowledge of the market and b)they copied a very successful Business Model (Netflix) and adapted it for use in their area of expertise/passion and c)they did a “soft launch” or proof of concept pilot to provide some history and comfort to the potential investors.

Note: Did you like the way Robert got thrown under the bus?

Gold Sharky…..Joe Moore from First Defense

It was an actual customer order for $8 million that got the Investors so interested in this. Investors are always trying to minimize their risk and Joe delivered the goods. Frankly, I think Joe gave away too much by agreeing to a 10% royalty in perpetuity. That’s a long time and could be a lot of money.

Note: Mark said to the other sharks, “We can change our deal once we get him in.” Beware Entrepreneurs!.

Silver Sharky…….Brian Spencer from Vurtego.

Hang in there Brian, I think ultimately you may have the best, biggest business of the bunch even without 3rd Party Investors. You did get some good advice. I like to say you should “double your price and keep half your customers”. This will help you be cool, stay cool, and make a lot of money. Think about hiring a CEO so you can remain the creative force and “cool guy”.

Shark Chum…Matty at Waken Bacon.

Matty…Seriously? Need to understand your market, costs, and risks next time.

Good line: When Mark told him he should have been asking for $170K, not $4oK…..”I am now asking for $170,000″. Funny.

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Shark Tank episode aired April 11, 2014

Last night Mark Cuban showed why he is so successful in business. He was the only Shark interested in investing in PowerPot, the clear winner of this weeks’ Sharky Award.

Entrepreneur Award-Sharky Award

PowerPot

Platinum Sharky Award Winner…..David and Caleb from PowerPot 

These two impressive young engineers had already raised $126K on KickStarter (Crowd Funding platform) before entering the Shark Tank. They have annual sales exceeding $300K and they have 15 employees.

Their product allows the user to cook food or boil water in a pot (picture a camping site) while charging their various electronic devices from the excess energy generated. At first it seemed like a gimmicky product for a small market and the Sharks dropped out….except for Mark Cuban.

As he continued to ask questions, he discovered PowerPot is being used in Africa to help citizens generate enough power to light their homes! All of a sudden this looked like a much larger opportunity and Mark made an offer of $250K for 20% equity.  David and Caleb negotiated and ended up with a much more favorable offer by using Advisory Options and giving up less equity. Well played guys!

The other three entrepreneurs came in a distant second and can only be considered for tonite’s Shark Chum Awards. They are:

Taylor from Taylor Robinson Music Lessons gave a nice presentation, but the software he used to connect musicians with customers was flawed….it couldn’t handle different hourly rates for various instructors. Customer acquisition costs of $33 per customer seriously hurt the profitability potential of this business.

Stan and Kevin from Funtime Express had a nice little business……giving kids rides on their train thru shopping malls. Somehow they “engineered” a deal with Lori and Mr. Wonderful despite the fact that he must have moaned “You’re too small for me” about 25 times.

Matt from Quickstop Fire Sprinkler has a terrific product that helps minimize the water damage generated by industrial fire sprinklers. The issue here is that the tool(s) Matt has invented are relatively complex and will require lots of end-user education. This combined with a relatively small market size “cooled” the Sharks’ interest. Matt did get an offer requiring him to give up 50% equity to Mr. Wonderful and Lori. Given the work required, I think he should have accepted  their offer.  He’ll need lots of Marketing help to make this work.

 

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Shark Tank episode aired April 10, 2014

I felt sorry for the entrepreneurs appearing on tonite’s show. They got caught in the middle of a series of juvenile arguments about who’s better……”The Boy Sharks or the Girl Sharks”.  I felt like I was back in my elementary school playground debating who the stronger sex is.

It all started when one of the Boy Sharks (Mark Cuban) referred to Barbara and Lori as “the girls”, and the fact that the guys owned businesses that could actually buy things…..and the girls didn’t own businesses that could buy things.

First of all, in business, it is bad form to refer to females as girls (unless they’re still in high school). Anyone older should be referred to as a lady or a woman. Even one of the contestants got sucked in and referred one of his business partners as a “girl”.

Anyway, the entrepreneurs were all excellent tonite.  Scott and Josh from Velocity Signs got a nice deal from the “Boy Sharks”. Mark agreed to buy 5 of the motorized moving signs with Dirk Nowitzki’s picture on it for use in the Dallas Mav’s arena.  Scott and Josh raised $225K in capital.

Erin and Jenny from “Hold Your Haunches” evened the score with the Boys when they took a deal from the Girl sharks. Their elastic shapers were not understood by the Boys (Mr. Wonderful even said he would litigate for fraud and false advertising if his date ever wore one).

Pat from Happy Feet had a nice business selling extra comfy slippers. Apparently both the Boys and Girls understood this product. Shark Robert nabbed this deal while the other Sharks were talking. Pat was a marketing maven….. he uses Snooki from Jersey Shore as a sales channel and spokesperson. (btw, he referred to Snooki as a girl!).

Sanjiv from “Lord Nut Levington” had an impressive background and had put over $1 million of his own money into his flavored peanut business. The Sharks didn’t bite on this one  because Sanjiv didn’t have a good growth plan and lacked passion for his peanuts.

 

 

 

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Shark Tank episode aired April 4, 2014

This was the first time since I’ve been analyzing the Shark Tank TV show (3 years) that I had to watch an episode twice before forming my opinions. Why? (No, I didn’t fall asleep while watching!)……Frankly, I couldn’t believe what I was seeing.  Many of the Sharks’ decisions baffled me.

Of the four contestants, I only agreed with one outcome. On that basis, the winner of tonite’s Sharky Award for entrepreneurial excellence is……..

 

Sharky Award for Shark Tank excellence

Sharky Award
The Paint Brush Cover

Platinum Sharky Award…..John, Sal, and Anthony from The Paint Brush Cover 

After a rocky start, these three landed a great deal from Lori.  They ended up getting twice as much capital as they asked for and getting a partner who will help them get their appropriately named product on QVC in the big box stores with “lightning speed”.

These guys were great! With over 60 years of painting experience, they were knowledgeable and passionate. Sal got so excited when Lori made her offer, his eyes almost popped out of his head. He looked like he had just scored JWOW’s phone number at a Jersey Shore bar.

Seriously, John’s opening verbal presentation needed some work. Entrepreneurs, you either need to memorize your presentation or just speak from the heart and touch the key points. John tried to memorize each word but stumbled. These guys were so lovable that the Sharks applauded when he finally got thru it. Most people wouldn’t be so lucky.

The Best of the Rest…….I was stunned that the Sharks wouldn’t make a deal with Cameron and Joel from Kodiak Cakes. They had their healthy pancake mix in 1600 Target stores. They were forecasting Sales of $5 million for the coming year. They had a premium product with very good margins. They had a 17 year track record. They gave a great presentation.

What’s not to love here?

The valuation was way too high according to the Sharks.

Cameron and Joel came in with a reasonable valuation (slightly high but that’s to be expected). They were valuing their company at roughly 10X pre-tax profits and 1X to 1.5X Revenues. A bit rich, but a reasonable starting point. The best offer they got was 3X pre-tax profits. These bottom fishing Sharks blew it! All low-ball offers were declined. Even Mark Cuban congratulated Cameron and Joel for turning down the Sharks offers!

In the “You’ve got to be kidding me” category were Christie and Courtney from Monkey Mat. These two engaging Mom’s had created a portable mat for kids to play on that cost $39.99 at retail!

….and this company was valued at 6X Revenues by the Sharks!!!! Lori and Mark plan on cost reducing this product so it is treated like a throw away umbrella. They believe this will make this a high volume product and “blanket” the market.

I’m still baffled by Nick and Josh from Plated. Let me get this straight, you order food ingredients, they ship them to you, and then YOU have to cook them! Maybe if you live an hour or so from a market this might be a good thing.

These two had great pedigrees (Harvard, Dartmouth, Georgia Tech, etc.) but didn’t seem to know much about food.  They were data driven entrepreneurs with Harvard MBA’s that had somehow convinced other investors to value their company at $9 million!

Mark Cuban occasionally invests in the entrepreneur and not the company…..this was clearly one of those times. He plunked down $500K for 5.56% of the company with the ability to get Advisory Shares down the road. These are shares companies can use to compensate their advisors.

I am now convinced we’ve entered an investment “bubble” and many companies are over-valued.  I will be interested to see how this turns out. But I’m still baffled!

 

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CNBC’s Shark Tank episode aired April 1, 2014

This episode was originally aired on February 3, 2012. The entrepreneurs were outstanding!

Platinum Sharky……..Travis Perry, Chord Buddy

Travis Perry ended up getting $125K from Robert for 20% of his company. He had built a guitar attachment that lets people learn how to play the guitar quickly and easily. The purchase price was about $50 and his cost to manufacture it was $7. This is a nice gross margin and helped generate lots of interest from the Sharks. He also had actual sales revenues of $500K and P.O.’s (Purchase Orders) that represented another $100k in new business. Travis was passionate and funny. He said he had his product in eight stores in L.A. (Lower Alabama!). He ended up getting four offers.

Gold Sharky………. Pat McCarthy, Liquid Money

Pat had a great looking product. It was perfume that smells like money! He made a great presentation, but the Sharks pushed back saying that a product like that is too expensive to bring to market. Mark Cuban made a statement that all entrepreneurs should remember. He said it’s a red flag whenever an entrepreneur says they’re in a huge market and “if I can just get a small percentage of a huge market, I’ll be fine”.

Daymond tried to bully Pat by saying he’d give him $1ooK but he needed 80% ownership of his company. When Pat paused, Daymond said he would up that to 85% if he didn’t accept his offer immediately. Pat correctly turned him down. Never, ever, take an offer from a potential investor when it doesn’t feel right. Good for you, Pat! You will make it without the Sharks.

Silver Sharky……..Megan Cummins, You Smell

Megan was a delight. She convinced the Sharks she was tenacious and would do whatever it took to be successful selling her soap product. The Sharks loved her and she ended up taking Robert’s offer of $50K in salary for the first year plus an investment of $55K for 20% of the company.

Shark Barbara was unusually aggressive on this opportunity. She made a lowball offer and when it was rejected, she lectured the other Sharks about how “ Women work harder than men”. Barbara is usually not the snarky Shark, so I’ll just write it off to her having a bad day.

Shark chum went to Kyle Rainey of Tail Lightz. The Sharks felt there was too much competition, his designs were dated, and there was nothing proprietary about his product. Kyle needs some Marketing help.

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Shark Tank episode aired March 28, 2014

Entertaining show this week….only one of the entrepreneurs scored an investment from the Sharks, but there were several lessons-learned provided by the other three entrepreneurs. The winner of tonite’s Sharky Award is……

Al from De-boned Baby Back Rib Steaks…..Al “Bubba” Baker had a 13 year NFL career before entering the food industry. Al has solved a real-world problem for people who think eating ribs is too messy. He figured out a way to cook the ribs, then de-bone them, and then package them to be sold in stores. After purchase, the ribs can be microwaved for two minutes and are ready to eat with a knife and fork.

What made his pitch so compelling is that Al had been awarded two patents for his product and his process. This type of protection is very unusual for food products and will allow Al’s products to be licensed to larger food companies without fear of pirating his ideas and know-how. Al did a deal from Shark Daymond. I have a funny feeling this could be a run-away hit.

Shark Chum…….Alexander and Marley from Spirithoods had sold over $9 million of their funny, furry hoods but their sales had decreased this past year. No investor likes to invest in a company with decreasing sales….especially when a nice annual profit turns into a significant annual loss. If they do invest, it is usually at a valuation 50%-90% less than the entrepreneur’s “ask”.

Jan from Virtuix valued his company at $20 million based on raising $1.1 million on the Kickstarter crowd-funding website. In return Jan had to “give away” 3,000 of his virtual reality units. His valuation was very high given his track record (very few real sales). Also, Mark Cuban thought there was a good chance Jan’s technology would be obsolete within five years.

Joselyn and Kelly from Fohawx had created some very cute bicycle helmets for their kids. It took me quite awhile to learn how to spell and pronounce the name of their company, and I’m still not sure I have it right (maybe Fauxhawks?). This is never a good thing from branding standpoint. A company and product name should be simple, easy to spell, and easy to remember.

Being from Bayonne,NJ (near my old stomping grounds) Joselyn and Kelly were very spirited, but took more hits during their presentation than the “Bayonne Bleeder”, Chuck Wepner…..the legendary Bayonne heavyweight boxer who somehow lasted 15 rounds with Muhammad Ali (Chuck even knocked him down once!).

Mark Cuban uncorked a knock-out punch of his own when he told the ladies, “You’re selling us on the dream and not on the green”. Ouch.

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CNBC’s Shark Tank episode aired March 25, 2014

This blog reviews each episode of the Shark Tank from an Entrepreneur’s point of view. “Sharky Awards” are given to the Entrepreneurs with the best overall performance.

Sharky Award for Shark Tank excellence

Sharky Award
March 25, 2014

Platinum “Sharky Award”-Dominique from Onesole

Dominique has a very creative women’s shoe that the Sharks loved. Even better, she had actual sales of $3.5 million in the last 12 months with profits of over $1 million. Even with a sales multiple of .5X and an EBITDA multiple of 6X, her company was worth at least $1.75 million. Daymond gave her $500K for 35%….just slightly less than my valuation. This could be a homerun for both Onesole and Daymond. Good luck to both!

Gold “Sharky Award”-Rebecca with Citi Kitty

A toilet seat for cats does not excite me. As Rebecca said to Mr. Wonderful, “If you don’t have a cat, you wouldn’t understand”. That said, Rebecca did a fantastic job negotiating with the sharks. She forced Kevin H. to improve his offer by telling him she was leaning toward Barbara because she “liked Barbara and the woman’s touch”. Barbara had offered $100K with no contingencies for 15% of the company. Rebecca knew Kevin H. would be a great partner with his infomercial expertise, but wanted a better offer.

She knew that Kevin would have to improve his offer of $100K for 25% if he wanted to stay in the game. He dropped the 25% to 20% and Rebecca took it. Good job Rebecca….alls fair!

Shark Chum Awards…. Aldo the Jewelry Maker ended up getting an investment but I don’t know how. Investors hate any kind of risk and Aldo was a one man show. Mr. Wonderful kept asking, “But what if you get hit by a bus?”. This is a common concern in the world of investing even if the odds are 1 in 1000.

Kim from Samson Martin made T-shirts for pregnant ladies. She suffered from decreasing Annual Sales (from $400K to $90K). Mr. W said that he thought this business was “all death and destruction”. Nice touch, Mr. Sensitive!

The moral to the story is don’t try to get an investment when Sales are decreasing. They’ll eat you alive. They want to know Revenues are increasing before they invest. This is the biggest single value driver for almost every investor.

PS. I think Samson Martin would be a good Internet business with fewer SKU’s…..stay out of the brick and mortar stores if you can!

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