The Deals are Heating Up, but are we Detecting a Formula?
Dolphin’s Den greetings! As we jump into Episode 2, are you starting to sense a formula? Here’s how I imagine the Shark Tank production meeting…
“Let’s get four pitches. One for an apparel company, another for a food company, and let’s throw in a knickknack that we can criticize. Also, let’s also make sure one of our guest sharks has an English accent.”
“Sounds great boss, we will replace Emma Grede with Peter Jones but isn’t that exactly what we did in episode 1?”
“Yeah… I see what you mean. Ok, let’s add another pitch with a new spin on the singing telegram.”
“Brilliant, boss! That is completely different!”
Oh, to be a dolphin on the wall of that meeting… but I digress, let’s get to the deals.
Shark Food – Growth-Stage Funding Opportunities
- SongGlorius – modern-day singing telegram
- MuteMe – knickknack
- Proper Good – convenience prepackaged soups
- Long Warf Supply Co. – apparel
There was enough chum in the water to keep the sharks engaged in the attack, but in at least one instance, the Dolphin’s Den would have been a much safer place to swim. The first lesson in growing your business is that you don’t necessarily have to give up equity to get the seed-stage funding you need. Non-dilutive funding (i.e., no equity loss) has a long, successful history of launching businesses with Media Funding from Charis Media Capital.
Take a look at where non-dilutive funding would have made a significant difference to these anxious entrepreneurs.
Episode 2 -Deja Vu All Over Again?
Pitch #1 – SongGlorius.com
Company Category: Novelty Gifts – original, customizable songs like the singing telegram brought to modern-day
Bait: $400,000.00 for 10% equity ($4.0 million valuation)
Bites:
- $400,000.00 for 33% equity ($1,212,121.21 valuation) from Peter Jones
- $400,000.00 for 20% equity ($2.0 million valuation) from Daymond John
- $500,000.00 for 40% equity ($1,250,000.00 valuation – Accepted) from the consortium of Jones, John, Mark Cuban, and Kevin O’Leary
Shark Rating: 4 Shark Bites – Full Feeding Frenzy
Dolphin’s Den – “If you give us the 40%, we will blow this thing up” – Kevin O’Leary. This may be a prophetic statement, but not in the way he meant it. We dolphins are trained by the Navy to navigate around minefields in the water, and we know that “blowing up” is not necessarily a good thing. A collaboration with four sharks is one story where we will anxiously await a follow-up. It may turn out to be a fantastic success story or an epic implosion. Only time will tell.
However, there was another option for this company – where they wouldn’t have lost ANY EQUITY. Songglorious asked for $400,000 to expand their marketing. However, they got four billionaires, each with a 10% stake (plus, possibly a lot of drama) at the cost of 40% of their equity… 40%! Effectively, they needed what’s called growth-stage funding to grow their business.
Songglorius is a niche business. There is virtually no intellectual property to stop competitors from taking market share. A company like this needs to grow quickly to dominate the space, then keep expanding into new features and options to retain customer loyalty and keep growing. Maybe this dolphin will buy them a song… here’s one on us “So Long, Farewell.” Good luck to Songglorious.
Pitch #2 – MuteMe
Company Category: KnickKnack
Bait: $200,000.00 for 10% equity ($2,000,000.00 valuation)
Bites: Go big or go home – They Didn’t Go Big
Shark Rating: Crickets, or maybe they all hit their MuteMe button?
Dolphin’s Den – It was another tough day for the KnickKnacks in the Shark Tank. MuteMe is an external mute button that hardwires to your electronic devices and lights up to let you or someone around you know if you have a live mic or not. This is a company tailor-made for the Zoom era, but it still lags in actual sales. It has been successful with crowdfunding since most people understand the annoyance of being hijacked by that person with the live mic in your video conference.
In general, crowd funders consist of the converted masses that have completely bitten on the product vision hook, line, and sinker at the emotional level – For MuteMe, these “investors” probably just got off a zoom conference with mom or dad and love the concept, whatever the cost (“Mom, I can’t hear you, unmute your mic. It’s that little icon in the corner of your screen. Stop talking, mom; click the icon that has the red line through it. Mom, you just turned off the video – I will call you on the house phone.”).
Dig a little deeper, and MuteMe has a very high cost of goods to price ratio, a very high price to perceived value; and, very little valuable intellectual property to stop big-box retailers and Amazon from driving the price down to $9.99. MuteMe, sorry to say, but this dolphin agrees with the sharks.
Pitch #3 – Proper Good
Company Category: Convenience Prepackaged Healthy Food
Bait: $400,000.00 for 10% equity ($4,000,000.00 valuation)
Bites: $400,000.00 for 20% equity ($2,000,000.00 valuation) from Mark Cuban
Shark Rating: 2 Shark Bits
Dolphin’s Den – Proper Good is trying to get a foothold into the subscription food space, which is currently a very strong category. Their niche is within the healthy, dietary restriction/conscientious space requiring little to no food preparation for a quick, nutritious meal. The company is seeing good sales growth but a huge loss due to customer acquisition costs. Mark Cuban struck a deal with them that will hopefully take their business where they want to go.
However, this dolphin would like to explore an alternative option. Proper Good does not currently offer a subscription model where customers receive product shipments every month. If they were a subscription-based business, like so many others in this food space, they would be armed with a database of active customers that would be a massive asset that they could leverage for working capital. At Charis, we call that Subscription Funding, and it is another growth-stage funding option that doesn’t take away equity.
Subscription Funding is primarily based on these three variables:
- Total amount of active customers
- Average monthly charge
- Monthly rate of cancelation per customer
Pitch #4 – Long Warf Supply Co.
Company Category: Apparel
Bait: $375,000.00 for 15% equity ($2,500,000.00 valuation)
Bites: $375,000.00 for 45% equity ($833,333.33 valuation)
Shark Rating: 1 Shark Bite (for the equity transfer from the founder to his sister)
Dolphin’s Den – Find all the sunken treasure and give it to Long Warf Supply Co. The water-dwelling side of my brain says, “Here, take my gold!” to any company that will clean my oceans; however, the self-interested, capitalist side says, “Nope, that is way too expensive of a valuation for the historical sales.”
Somebody is going to make a killing on the technology that converts recycled oyster shells and water bottles into wearable fabric (along with wool), only they’ll have to do it without Shark funding. During the pitch, however, Mark gave Long Warf a fantastic idea. He suggested they create a socially conscious, affordably priced T-Shirt to establish the customer relationship then upsell them into their premium, higher-margin products without additional customer acquisition spend. Overall, it’s an admirable concept that needs some more time under the incubation lights.
Could These Companies Have Received Growth-Stage Funding Without Equity Loss?
Overall, two deals were made, but 60% equity was lost. Hopefully, all these businesses will take their Shark Tank experience and become successful. We’d just like to offer an alternative route to those entrepreneurs that are leery of being bait to enrich the lives of predator fish.
Contact our funding experts for a free consultation. We offer a variety of seed-stage and early funding options for direct-to-consumer (DTC), direct response, and subscription-based e-commerce businesses.
As we like to say, we provide all the industry connections you need, boast a stellar reputation for honesty and trustworthiness… all without the carnivorous results.
Complete our Contact Us form to get more information, or just pick up the phone and give us a call – 908-832-5433.
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