This episode featured many different financing techniques and scenarios. Debt financing, down rounds, equity kickers, Silicon Valley valuations, were just a few of the scenarios on this episode. I’ve often said that when it comes to outside investment in a company, you’re only limited by your imagination. This episode proves my theory.
Ryan, Dave, and Chris from Inboard have developed an electric skateboard that sells for $1,400! They had previously raised $2.7 million which they used to develop their unique in-wheel motor technology, and grow the company to the point where they received $5.6 million in pre-orders. Now they needed money to produce and ship their product.
Rather than give up a chunk of equity, they opted for a $750K, 36 month term loan at 9% interest. However, they also need to pay a 4% equity kicker to secure the loan. The hope is that Sharks Lori and Mr. Wonderful can help them grow and are worth the 4% kicker.
Renaldo from PetPlate prepares and ships healthy food for pets. Despite having a great educational background (MIT), relevant experience in the food industry, and a reasonable company valuation, there was no deal here. With only 100 subscribers, the Sharks weren’t convinced this could be a big enough business to warrant an investment.
Jeffrey and Michael from Nootrobox make chewable coffee. They came into the tank with a “Silicon Valley company valuation” of $40 million (with sales of $1 million). A multiple of 40X Sales is high even by Silicon Valley standards. If this were to be valued as a food company (which it is) the valuation multiple would be closer to 2X sales.
Not only did they have an inflated valuation, their presentation was awful. Although they may be very talented scientists/engineers, they could not articulate or prove their value proposition and left the Sharks cold. No deal here.
Lisa and Abe from Nomiku have created a device which cooks food “Sous Vide” style with the press of button. They have sold $3 million of them since 2012. They had previously received $875K in their “seed round” (early investment by a Venture Capitalist or Angel Investors), and received a $2 million convertible loan at a $10 million company valuation. The problem here is that the company valuation is now just $5 million. This is referred to as a “down round”.
Guest Shark Chris Sacca took a liking to Lisa and was interested in making a deal, but because of the down round, that would have left them with very little equity. He ended up making an offer of $250K for 10% under the condition that Lisa and Abe go back to their current investors and convince them that the Lisa and Abe end up with a 40% interest in the company. Chris’s rationale was that founders need to retain a significant equity position to stay motivated.
It sounded to me like there are too many moving parts in this scenario and the deal may never get done.
OVERALL RATING OF THIS EPISODE…………….C+