Why One Young Entrepreneur Turned Down Mark Cuban on Shark Tank
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The premiere of season four of ABC's reality series Shark Tank kicked off with a bang -- an entrepreneur and a deal that had the hard-nosed Shark investors at each others' throats. The ruckus was caused by recent Indiana University business-school grad Derek Pacque and his coat-check technology company, CoatChex. The mobile, collapsible coat check kiosk replaces easily lost paper tickets with a database of customer’s names and cellphone numbers.
Pacque ended up turning down one of the best offers the Sharks have ever made in the show's history: $200,000 for just 33 percent equity in the business from Mark Cuban, who thought the company's technology would make a quick Silicon Valley flip.
"You're ruining the Tank!" griped fellow Shark Daymond John at the low equity in the offer. The Sharks rarely ask for less than half a business.
But after conferring with his business partner and former professor Gerry Hays, Pacque took a pass.
"Unbelievable! Now I've seen everything," exclaimed the ever-acerbic Kevin O'Leary.
Was he crazy to turn down the big money? I spoke with Pacque recently to get the story of how he got in the Tank, and why he passed on an offer of money and mentorship from the man who Pacque names as a major role model.
Pacque started CoatChex in college after he lost a coat at an event. Operating his own ticketless coat-checking kiosk system at local venues, he made $50,000 checking coats in his first season. But he had yet to sell a single kiosk to a franchise when he entered the Tank.
He applied to Shark Tank almost as a lark after seeing fellow Indiana alum Cuban tweet about auditions. He figured he'd never make the cut among the more than 30,000 businesses that applied. But he played up his similarities to Cuban -- both are from Pittsburgh as well as being Hoosier grads -- and his gambit to get the judges asking questions worked.
In his application, he teased, "I have this really cool technology that's going to change the coat-check industry."
Suddenly, there he was before the Sharks, seeking $200,000 for 10 percent of the company. Pacque wanted funding to franchise the business and test his patent-pending technology, but that offer valued his company at $2 million, a level the investors rejected as too high.
Why not take $200,000 for one-third of the company, though?
"It's too early in the game to be giving up this much equity," Pacque says. "But it was worth it just for the chance to pitch our brand and get people interested in our business. The exposure is like a $500,000 infomercial. I was hoping I'd get a deal, but that's all about price and valuation."
He's hoping to bring Cuban in later on, once CoatChex has sold some franchises and proven its model. He says Cuban seemed open to the idea.
"I don't think it's in Mark Cuban's or my best interest to have him in now," he says.
CoatChex is expanding slowly, and will be setting up shop in Chicago this winter. Deals are also in the works for checkstands in New York City and Washington, D.C.
Pacque doesn’t have any second thoughts about turning down the offer. "I don't regret it, though people think I'm nuts," he says. "We've already had offers at higher valuations."
Ever pass on a business deal? Leave a comment and tell us why.