Remember the red-shirted crewman on the original Star Trek landing parties? You know: the anonymous security man who got zotzed by hostile aliens after only 30 seconds of screen time? As soon as this guy beamed down to the planet surface, viewers knew: “Oh, he’s a goner, for sure.”
Fans of Shark Tank can’t be blamed for reacting similarly to the show’s video profile highlighting the folks behind one of the four businesses pitching on each episode. Usually, the subject is a photogenic, hard-working couple with adorable kids and the same kind of tragic, inspiring back story normally reserved for Olympic athletes.
Usually, too, the sharks tear those entrepreneurs to shreds.
That pattern seemed to be playing out, in last Friday’s latest episode of Shark Tank, during a video for Hatch Baby, a "smart"-tech baby-changing pad that helps new parents track their baby's weight.
But, then, came a reversal, allowing the company founders to escape with more than a few bite marks -- and a deal.
Ann Crady-Weiss and Dave Weiss were the couple pitching their smart baby-changing pad, which weighs the newborn before and after feeding, to track not only the infant's weight but also health and breastfeeding goals. The pad syncs with a smartphone app and even allows parents to remotely monitor the data.
The Weisses could cite the great track record they had, working for Johnson & Johnson; they had also sold a previous successful business, also in the childcare space. What they didn't have was sales: Hatch Baby’s website was just one week old, which didn’t thrill the sharks. They also didn’t like the fact that Hatch Baby sold for $299 even though it cost $89 to manufacture.
But what they really, really didn’t like was that the couple sought an investment of $250,000 for 2.5 percent equity – a valuation of $10 million on total sales of $0.00.
The sharks were dubious that parents would spend $300 on a connected changing pad, and some were dubious about sales projections of $6 million in the first year. The couple's best shot seemed to be guest shark and former Google executive Chris Sacca, who had a baby on the way. But, like nearly all the other sharks, Sacca bowed out, saying that the company could work but that he didn’t want to invest in something that was still in the prototype phase.
Still, Crady-Weiss weren't giving up. “We know what you guys do for companies; we want you guys,” said Ann Weiss. As an alternative, the couple offered a chance to participate in what remained on their original round of financing -- a convertible note capped at $7.5 million, with equal terms to the original investors. After some hesitation, Sacca made the deal.
Related: Your Baby Is Going High-Tech
David Hegarty pitched an app called Fixed that reviews parking tickets, looks for possible errors and, when it finds them, files a letter to contest the ticket. Hegarty started Fix in one of the country’s great parking ticket capitols -- San Francisco -- and has expanded it to Oakland, California; Los Angeles; and the ticket mecca of them all, New York. He sought $700,000 for 5 percent equity.
The app is free to use, but Fixed charges $35 for any ticket it successfully disputes, or a $1.95 service fee to pay the ticket if no errors are found. About 25 percent to 35 percent of all tickets are submitted, making revenue $5 to $6 per ticket. Hegarty projected his net annual revenue would be $80,000.
The big problem for Fix, however, seemed to be customer acquisition costs. Right now, Hegarty’s crew follows traffic agents and places fliers on the windshields of cars with tickets, for a cost of $4 to $5 per each new customer. On the upside, 70 percent of customers become repeat users and get an average of six tickets per year, Hegarty said, but the sharks didn’t like the fact that the cost nearly wipes out any initial profit from a new customer.
Sacca thought Uber (where he’s an investor) and self-driving cars would make the ticket-fixing business shrink, while Robert Herjavec was dubious about Hegarty’s $14 million valuation. Kevin O’Leary was nervous about tangling with a source of government revenue, and Lori Greiner didn’t feel sure that the business would work.
That left Mark Cuban, who liked the idea of disrupting just about anything. He offered $700,000 for 5 percent equity, with an additional 2 percent as an advisory fee. Hegarty initially balked, wanting to be assured that -- for a full 2 percent -- the company could get Cuban’s full attention, but that didn’t sound like a problem. Said Cuban: “I love the idea of kicking the government up the ass.”
Tasha and Antonio Adams, twin brother and sister, were seeking $125,000 for 10 percent of Village Scholarships, a crowd-funding app and site to help students pay for college. The idea was pre-concept, so it hadn’t launched. The 8.5 percent service fee also doesn’t sit well with the sharks.
While that amount was similar to those of other crowd-funding costs, the sharks didn't see Village Scholarships as offering access to any new sources of capital, beyond a student’s family and friends. “You’re not really bringing anything that they don’t already have,” Sacca said.
While the founders talked about other potential expansions, to match scholarships or allow donors to set up new scholarship offers, the pitch ended up sounding confused and unfocused. “The problem is that you came too early,” Mark Cuban said. “You’re not there yet.”
Added Sacca: “Ideas are cheap. Execution is everything.”
From the start, you knew that Nicholas and Alessia Galekovic were going to tie up with Lori Greiner, “the Queen of QVC.”
The Galekovics were pitching Beard King, a beard-trimming appliance that keeps all those disgusting little hairs off counters and out of the sink during beard-grooming sessions. The product's re-usable apron ties around the user’s neck and attaches to the bathroom mirror with suction cups, providing a drop cloth to gather the trimmings for easy disposal.
The owners targeted O’Leary specifically, featuring an old photo of the shark sporting an impressively bushy beard. But what kept “Mr. Wonderful” and most other sharks out was the fact that Beard King already seemed successful on its own.
Thanks to a marketing video that had gone viral, garnering 20 million views, Beard King had racked up $140,000 in sales in eight months, and sold 80,000 units the previous month. Indeed, the business had scaled to the point where the cost was $7 on an item that sold for $29 -- a 75 percent gross margin. But initial margins were slimmer and the couple needed money to expand, they explained.
Herjavec said he felt that at this point, the Galekovics could bootstrap the company, to self-finance expansion; Cuban and O’Leary saw a product but not a company. And while Sacca sported his own beard, he didn't believe he could help the couple.
Then, as final shark Greiner prepared her own “no,” Alessia Galekovic interrupted her, asking, “What would it be worth for you?”
“Because I see this as so, so risky, I’d have to take 51 percent of the company,” Grenier said. “I was going out.”
The Galekovics conferred, countering with an offer of 45 percent and the real deal-clencher -- a Beard King crown and robe. “We’ve built this from nothing,” Alessia pleaded.
That was too irresistible for Greiner: “Done,” she said.