Don’t Feed the Sharks Episode 6

Looking for Expansion Stage Funding? There’s Much to Learn from the Shark’s Latest Offers

Food product…wedding product…food product…off-duty firefighter app… wait, what? Welcome to the Dolphin’s Den, where we review the money pitches for food and wedding products, also known as the Shark Tank. Today’s installment looked like the same ol’, same ol’ until they threw in that off-duty firefighter app. So, let’s grind through the first three pitches for expansion stage funding and see if anything looks good, then get to our flame dowsers pitch (here’s a hint, it is an app, so expect to hear something about spinning straw into strands of gold). Also, Nirav Tolia is back, so expect more kisses than bites.

Shark Food – Direct Marketing Businesses

Fish Fixe – food delivery service
Hello Prenup – wedding
Deux – food, dessert
Hidrent – fire fighter app

Pitch #1 – Fish Fixe

Company Category: Food

Bait: $200,000.00 for 15% equity ($1,333,333.33 valuation)

Bites:

$200,000.00 for 33.3% ($600,600.60 valuation) from Kevin
$200,000.00 for 25% ($800,000.00 valuation) from Lori (accepted)

Shark Rating: 3 bites – “How to make $533,333.33 vanish in 12 minutes or less” would not be on the NY Times bestsellers list.

Dolphin’s Den – Another food delivery service – you have to ask at what point do we achieve market saturation? The key to success is to capture a “corner” (nod to the business wisdom of Avon Barksdale and Stringer Bell of The Wire season 1 — great business nuggets).

Fish Fixe comes into the Tank with a positive gross sales trajectory and two very solid operators at the helm. Their trouble is not so much expertise (that needs to be bought with a huge chunk of their equity); it’s the classic need for expansion stage funding, i.e., cash for essential operational costs like inventory to cover purchase orders and funds for marketing. Their target seemed to be Lori, and ultimately she did offer the $200K they were seeking but in exchange for 25% of their business. Still, suppose they were hell-bent on going in this direction? In that case, the extra 8.3% to Kevin, who owns a successful complementary business (Chef Wonderful) with its customer data, might have been the better choice. Either way, it’s a costly 12 minutes.

A less costly route is media funding with Charis Media Capital. Media funding gives you a flexible, guaranteed credit line to finance your media campaign, allowing you to roll your sales dollars into operational expenses. Oh, and did we mention that there is no equity loss with media funding, so once your business is self-funding, you still own your business… what a concept — we’re glad we thought of it.

Pitch #2 – Hello Prenup

Company Category: Wedding (Wedding Ending) Application

Bait: $150,000.00 for 10% equity ($1,500,000.00 valuation)

Bites: $150,000 for 30% equity ($500,000.00 valuation) from Nirav and Kevin (accepted)

Shark Rating: 1 bite – “You are confusing me, Mr. Dolphin. How can a business that just dropped $1,000,000.00 in value have fewer bites than a company that dropped half of that amount (Fish Fixe)?”

Dolphin’s Den – The charitable soul of Nirav has pulled another business from the Sharky depths into the clear waters and blue skies of “Nirvana.” Hello Prenup has $20,000.00 in lifetime sales. A quick search and you can see a slew of “free” online prenup agreements and several companies doing the basics of Hello Prenup’s core mission, meaning that the space is not protected, nor is it “fresh powder” (meaning a unique business concept). All the Sharks more or less said the same thing (“Pass”) until Nirav, sensing that there might be sadness invading his space, decides to use his magic rainbow dust and save these entrepreneurs with an incredible offer given their current state. Moreover, some of that dust hit Mr. Wonderful, who rescinded his pass to partner up with the Nirav bringing his wedding database with him (however, I am not sure what that will be worth unless they can rebrand the business to be Hello Postnup — ba-dum-bum-CHING).

Pitch #3 – Deux

Company Category: Supplement Desert (Food)

Bait: $300,000.00 for 10% equity ($3,000,000.00 valuation)

Bites: $300,000.00 for 15% equity ($2,000,000.00 valuation) from Robert

Shark Rating: 1 bite – for the brutal negotiating lesson

Dolphin’s Den – “Nutritious” cookie dough sounds like “organic” Oreos – “I don’t think you know what it means” (HT: Princess Bride). Cookie dough is not meant to be nutritious. So, supplements aside, it still says to me that I’m eating an unhealthy uncooked cookie. What was interesting was the last-second offer and subsequent negotiation between Robert (not Nirav, amazingly enough) and the company’s founder Sabina.

Against all common sense, Robert decided to offer the $300,000 Deux was seeking and just asked for an additional 5% (15% total). Sabina had just been rejected by all 5 sharks and should have been on her way down the hall, but Robert threw her this lifeline which she promptly threw back in his face (countering with a 12.5% offer). This defies most explanations and probably means that the $300,000.00 was never really a critical, well-thought-out amount for the business. If it was, then losing the deal over 2.5% is a very shortsighted decision and one that doesn’t match the valuation sought.

Despite my review of this particular interaction, Deux is a product where Media Funding makes sense. She clearly needs expansion stage funding to meet purchase order commitments and marketing expansion, but she can offer strong early sales and an optimistic projection for growth.

Pitch #4 – Hidrent

Company Category: DIY App (where somebody else DIY’s for you)

Bait: $300,000.00 for 8% equity ($3,750,000.00 valuation)

Bites: $300,000.00 for 33.3% equity ($900,000.00 valuation) from Robert and Lori (accepted)

Shark Rating: 2 bites – This deal falls somewhere in between Hello Prenup and Fish Fixe

Dolphin’s Den – Hidrent is an Angie’s List where instead of an expert, you get a firefighter to do your at-home tasks. The business has shown promising sales but is obviously spending much more than it is making. I thought Nirav would gobble this up and integrate it into his Nextdoor network, but he passed with a “been there done that” (someone get Nirav some Unicorn milk – stat). This business is all about growing out and signing up fire companies, which is a labor-intensive undertaking. Lori has the database of the likely customers, but they can’t be accessed if no one will hear the bell and slide down the firepole. Because of that, I think Hidrent did well to give up equity for cash, but I don’t think it was enough.

Today’s Lesson in Expansion Stage Funding – Know When to Hold ‘em and When to Walk Away

Here is a quick rundown of the equity trades in just this episode… 25%, 30%, 33%. The Sharks got their meal in this show. Again, there is a significant upside for these companies from being on the show and working with the Sharks. However, assuming that most, if not all, of these businesses, already have equity deals with early-stage investors, the entrepreneurs have further, and significantly, reduced their ownership value.

We don’t write these blogs for these folks. We are here for entrepreneurs that are looking for an alternative to equity deals. Media funding is unique, but it’s not new. We’ve been doing it for two decades because we were once surrounded by sharks ourselves and didn’t have a Charis Media Capital to turn to.

Call our funding experts or complete our Contact Us form to request more information.