Last night’s Shark Tank episode featured the largest investment in the history of Shark Tank. Mr. Wonderful (aka Kevin O’Leary) invested $2.5 million for 10% of Zipz, a company that makes and sells “wine by the glass”.
I was fascinated by this deal! As you may recall, James Martin from Copa Di Vino had appeared on Shark Tank twice and didn’t get a deal from the Sharks. James’ company made a very similar “wine by the glass” product. As far as I could tell, the main difference between their products was Zipz glass was made of glass and Copa’s was plastic. The products were similarly priced (about $3.00 per glass). They both had patent protection on their products. I’m assuming the wines are of similar quality even though Copa is from Oregon and Zipz is from California.
That’s where the similarities end. Copa was only given a valuation of $2.5 million by the Sharks and Zipz was given a valuation of $25 million. This despite a huge difference in their annual sales which is usually the most important determinant of overall valuation. Copa’s sales were about $12 million per year and Zipz were less than a million!
So how can two similar companies have such radically different investment outcomes? How can the company with (at least) 12 times the sales be given a valuation that is 90% lower than Zipz?
Here are my thoughts.
Wine by the glass strategy….When James Martin appeared on Shark Tank, he did not want to license his packaging to other wineries (at the time, Mr. Wonderful thought licensing was the winning strategy). When James returned to the tank for the second time, he showed how successful he had been following his own strategy of using the packaging to sell his own wine by the glass. The Sharks thought he was being arrogant. Mr. Wonderful does not like being proven wrong….especially on subjects having to do with wine.
Timing is Everything….For the last two years Mr. W has been trying to convince Costco to sell his wine. Apparently he is now close to hitting “the mother load” and he is viewing Zipz as his ticket. He said if they can get the price to Costco down to $1.06 per glass, they can get their business. Of course this is essentially the same “wine by the glass strategy” used by James Martin!
Back at you, James…Even though Shark Robert Herjavec suggested the licensing strategy for Zipz last night, Mr. Wonderful ignored the idea. I think Mr. W wanted to beat James Martin at his own game! I think we were seeing a little bit of a revenge factor here.
The likeability factor……The Sharks clearly never liked James Martin. He held all the cards and could control his own destiny. I didn’t think he was arrogant….I thought he was right! Even last night during the Zipz pitch, Mr. Wonderful took a shot at James by saying to the Zipz presenter something like, “You’re cool…..not like the last guy who was here sweating profusely”.
The Zipz Presentation……Andrew gave the presentation for Zipz. Interestingly, the CEO was not with him. Andrew owns a bar at CitiField in New York and is a consultant to Zipz. Where was the CEO? Something didn’t feel right. None-the-less, the Sharks liked Andrew and people tend to invest in people they like.
Cashe Factor….. On the other hand, the company had already raised $8.5 million from some well-heeled Wall Street investors and they had put together a partnership with Fetzer, a well-known winery based in California. Investors love to know that other big-time players are involved. This increases their valuation and can help lead to an acquisition down the road.
Improving Investment Climate….With the stock market rising, most company valuations are on the rise. It’s been a couple of years since James Martin’s original appearance on the show, and the market has gone up about 25% since then.
First-to-Market doesn’t always win…… Being the second company in a given market segment gives credibility to the segment and reduces risk. Sometimes being the first in means you’re a pioneer. It is often said that a pioneer is the one with arrows sticking out of their back.
The Future…… James Martin from Copa Di Vino has more control, focus, and expertise than Zipz. This has helped build a growing and profitable business. Zipz has more money and more connections, but that doesn’t mean they will necessarily win the race. If Zipz is successful getting into Costco, and can then license their technology to other wineries around the world, they will become the 800 pound gorilla in this space.
My apologies to the other Shark Tank entrepreneurs from last night. Stephen from Biaggi had very useful foldable luggage and got a nice deal from Shark Lori. Lydia from S.W.A.G. Essentials did a nice job, but was just too early to get an investment. Shawwna and Kurt from GameDay Couture got a deal from Mark Cuban who wanted to improve the quality of Mavs clothing for women. Congrats!
P.S. In the update segment, Sharky Award winner Scrub Daddy is approaching $30 million in sales. Wow! Good job Lori!!!!