Don’t Feed the Sharks – Episode 1
Growth-Stage Funding Doesn’t Require Equity Loss… Unless You’re Dealing with Sharks
Greetings from the safe confines of the “Dolphins’ Den,” where everyone is allowed to swim free, and our only rule is “Don’t feed the Sharks!” We have nothing against these ravenous creatures, but as a rule of thumb, shark encounters leave unsuspecting entrepreneurs without an appendage or two and with no feasible means of getting safely to shore.
Most entrepreneurs can only dream of making it on Shark Tank, let alone having one of the Sharks buy into their dream. However, most growth-stage businesses don’t realize that sources of non-dilutive funding (meaning no equity loss) exist. Moreover, not only does it exist, but there is a successful history of funding these businesses with Media Funding from Charis Media Capital.
Shameless plug aside, this blog series will provide an alternative view of the exchanges between the entrepreneurs and the kings of the ocean and safely away from the blood-tainted waters of the tank. We hope that the advice offered in this series will help prevent dangerous offshore encounters for early-stage businesses like yours.
Let’s dive in…
Shark Food –
- Shark Tank receives over 50,000 applicants each year
- 1000 survive the pre-screening process
- 300 actually pitch the sharks
- 150 (of the 50,000 applicants) are aired on the broadcast
What Funding Offers Fed the Sharks in Episode 1?
On the season 13 opener of Shark Tank (10/9/2021, ABC), our iconic apex predators heard 4 pitches from eager entrepreneurs: 2 apparel companies, 1 “super” food business, and 1 storage device product. After 60 minutes, the episode concluded with just one business receiving and accepting an investment offer for growth-stage funding.
Shark Tank Pitch #1 – Kin Apparel
Company Category: Apparel
Bait: $200,000.00 for 10% equity ($2.0 million valuation)
Bites: $200,000.00 for 30% equity ($666,666.67 valuation) from Lori Greiner and Emma Grede combined
Shark Rating: 3 Shark Bites
Dolphin’s Den – Ouch! Sort of like the opening sequence in Jaws (keep your clothes on and stay on the beach). Kin went in with $2,000,000 in value and traded $1,333,333.37 for $200,000.00 cash.
What Kin really needed was a credit line. With a credit line, Kin could have:
- Pre-ordered stock
- And/or received a standing letter of credit with their manufacturer to ensure a steady flow of product
- Reduced the 4- to 6-week lead time on delivery
Kin has $0 CAC (customer acquisition cost) due to viral marketing and a growing social media community which is a huge plus. A little supply chain help from the little brains (what we big brain dolphins affectionately call the bipeds in Washington D.C.) would also benefit Kin.
Bottom line, the financing vehicles Kin needed shouldn’t have cost 30% of the business. Kin does not get a full 4 Shark Bites because her new equity partners are experts in apparel and have ready-made distribution pipelines. Therefore, Kin may make up that rash value giveaway with a substantial increase in distribution reach and revenues under the guidance of their new sharky partners.
Shark Tank Pitch #2 – Uprising Food
Company Category: Food
Bait: $500,000.00 for 3% equity ($15,000,000.00 valuation)
Bites: Not a nibble
Shark Rating: More chum needed
Dolphin’s Den – Swim away as fast as you can as the hook is attached to an anchor. No Sharks took the bait, and in a very rare turn, this dolphin applauds their good sense with my flippers. One of the weird inversions that has happened in our current tech and social media-driven stock market is that new entrepreneurs think they can parrot investing jargon and show “top line” sales growth while downplaying profitability. There is always some mythical investment bank or large conglomerate in their spreadsheet fever dreams that comes in and bails them out of their negative equity death spiral with a buyout at 6x topline sales… Ok, you do you, but this dolphin has always had a tough time cashing checks issued from a bank that only operates in “Spreadsheetville.”
Shark Tank Pitch #3 – Lion Latch
Company Category: Knickknack (I don’t know if it is a category, but if not, it’s now my ™)
Bait: $150,000.00 for 15% equity ($1,000,000.00 valuation)
Bites: When fishing for sharks, you need a bigger hook
Shark Rating: Maybe leave shark-infested waters and swim with dolphins.
Dolphin’s Den – Sharks swallow little trinkets whole (along with fingers, toes, license plates, spare tires, etc.). However, profit margin is profit margin (you hear me, Uprising Food), and based on Lion Latch’s numbers, they have sold $530,000.00 worth of their product over the last 5 years. If every unit was a direct sale, that equates to $450,500 in gross margin.
Obviously, marketing costs are associated with this, but I suspect the biggest expenses that have netted down her gross margin have been manufacturing setups and tooling. The injection molds for plastic items like the Lion Latch are very expensive upfront capital costs to the business but amortized over a large production run can amount to a small percentage of the total landed costs.
Given the great margins, Lion Latch could most likely self-capitalize the cost of a mold for mass production. This would ultimately reduce the already favorable cost of goods and increase their manufacturing capacity (more units over the same lead time). Partnering with a kind-hearted Dolphin on funding their marking costs and factoring in their retail invoices would also close their cash flow gap and not cost them any amount of their hard-earned equity.
Shark Tank Pitch #4 – Paskho
Company Category: Apparel
Bait: $500,000.00 for 2.5% equity ($20,000,000.00 valuation)
Bites: Pats on the back but no bites.
Shark Rating: “If wishes were fishes, we’d all swim in riches.”
Dolphin’s Den – “Feels” over foundation. Paskho is trying to create micro manufacturing pods in underserved communities, creating jobs, bringing up wages, and elevating the quality of life in areas in the United States that are suffering and lagging. Wonderful sentiment! We applaud their big vision, but it’s not something even a higher functioning species like a Dolphin can connect the dots between where they want to be to where they currently are. Best of luck making this a reality but no real options at the current time in the Dolphin Den.
Non-Dilutive Funding Means No Equity Loss
One of the selling points of swimming into the proverbial tank is exposure to the connections and experience of the predator fish. Impressive resumes back up this idea; however, our direct response team and DTC experts have decades of experience, all the industry connections you need, and a stellar reputation for honesty and trustworthiness… all without the carnivorous results.
Complete our Contact Us form to get more information about our non-dilutive, early-stage funding options, or just pick up the phone and give us a call – 908-832-5433.
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