Good show last night! The “Update” segment of the show featured Season 5 Sharky Award winner GrooveBook. They had recently been acquired by Shutterfly for $14.5 million….the largest acquisition in Shark Tank history. Mr. Wonderful was all smiles as he was the smart Shark who invested in GrooveBook.
A Shutterfly Press Release indicated that a portion of the $14.5 million is dependent on an “earn out” which requires the owners to stay with the acquiring company for a period of time and hit certain targets….usually Revenue goals that have been agreed to in the contract. The advantages of this type of deal (to the acquiring company) are they conserve cash for a period of time while reducing their risk that the acquisition didn’t work out.
The danger to the entrepreneur is that the acquirer can change their priorities and make changes that effect the seller’s ability to hit their targets. In short, from the seller’s standpoint, cash is usually always preferable to an earn-out.
The four contestants appearing on last night’s show were quite entertaining. The most impressive entrepreneur team was Dan and Wes from PhoneSoap. They are the winners of this week’s Sharky Award for entrepreneurial excellence.
These two had invented a combination phone charger and sanitizer. They did a great job explaining why their product is so desired. They quoted one study that showed that smart phones are 18 times dirtier than a public restroom! I don’t know who did the study and how they came to this conclusion, but it got the Sharks talking about how this can happen.
Mark Cuban thought that hospitals would be a great target market, but Shark Lori disagreed and thought this would be a better consumer product. She prevailed and ended up making a deal for 10% equity for $300K.
Best of the Rest…..Ned and Jen from Greenbox made a pizza box with recycled materials. Even though it cost slightly more than a regular pizza box, Mr. Wonderful thought enough of the company to offer them a loan of $300K which, even after Ned and Jen pay the $300K back, they will give up $10% of their company.
Deborah and David from Victoria’s Kitchen made and sold almond water. David wanted to sell more products (SKU’s) to stores that already carried their almond water. He felt that he and Deborah could respond to any customer desire and wanted the customer to tell him what they wanted.
Although it’s good to listen to customers, David carried it a little too far. Shark Robert warned them, “When you’re this small, you can’t listen to what customers want”. Mark Cuban thought they looked desperate. No deal here.
Aaron from Tycoon had developed an online way to let people invest in Real Estate projects. Aaron got an “I’m out” from Mark before he finished his pitch. Shark Barbara, who is a real estate deal guru, agreed with Mark when she said that the lead investor in a real estate deal is critical, and Aaron had no track record as a lead investor. No deal here.