The theme of Friday’s Shark Tank episode was “Made in America”. It featured four businesses with Sales of less than $500K that manufactured their products in America. The winner of this week’s Sharky Award for entrepreneurial excellence is Sharon and Kate from Frill.
These two friends started a company that makes and sells dresses that allow sorority sisters to “dress in unison during rush week”. As seniors, these two had Revenues of $149K…..not bad for a couple of college kids!
Besides their poise and knowledge of the marketplace (they knew there are 3,127 sorority chapters in the US and Canada), they had added a Bridal Division to sell dresses to bridesmaids. This accomplished several things. First, it took a highly seasonal business (sorority dresses) and smoothed their business with year-round demand (weddings). Second, this leverages their product expertise while increasing their revenues and profits. Third, it gives them a ready-made pipeline of demand once the sorority girls graduate. Great strategy!
Sharon and Kate ended up with a deal from Sharks Barbara and Kevin for $100K for 30% equity…..a fair valuation at 2X last year’s sales.
The Best of the Rest….Jason and Michelle from Twin Z Pillow were a close second to Frill. They had invented a pillow that could be used to feed twins simultaneously. The product and the company were started out of necessity…..Jason and Michelle recently had twins AND lost their corporate jobs at the same time. Many great companies were started when the founders had their backs against the wall…..it forces creativity and taking risks that you otherwise may not take. Shark Mark Cuban said it all, ” You put it all on the line. You are the American dream”. They got a deal with Shark Lori for $75K for 15% equity.
Dave from Coco Jack took 12 years to bring his coconut cutting tool to market. He had very poor organizational skills and was into a million different things. Despite these drawbacks, Dave somehow got a deal from Mark Cuban.
The deal itself is worth some discussion. It was a “convertible debt” deal at 7% interest. It remains on Coco Jack’s books as debt until a pre-determined time. At that point, the amount Mark invested ($125K) is either converted to equity (25% of Dave’s company) or the debt must be paid with 7% annual interest. If things don’t go well for the entrepreneur or the timing is bad, and the $125K can’t be paid back, Dave’s patents and other assets go to Mark.
This is a high risk/reward situation for the entrepreneur. Our software company had a convertible debt deal that came due a week after 9/11/2001. The investors wanted their money back. We had enough cash to pay off the debt (with interest) and held on to the company, but it took us several years to climb out of the hole we found ourselves in.
Finally, there was George from BedRyder. He was a very good salesman but he couldn’t convince the Sharks to invest in “his” company…..low sales, high costs, and tremendous potential liabilities hurt him. But his biggest mistake was not bringing Cary, the company founder and 85% owner to the tank. No deal here.