This week Kevin H. makes up for many episodes of limited investing by putting $235,000 to work in both of the successful pitches. He also takes Kevin O by surprise and undercuts Robert in a deftly handled negotiation maneuver. All together, the Sharks invested $305,000 and snagged an average stake of 50%.
Another lesson comes courtesy of Legal Grind, the curious merger of low cost legal services and coffee house. Yet another attempt at franchising, these poor folks have been working for 14 years and still had to come crawling before the Sharks to drum up capital. If that isn’t a bad sign in itself, Barbara asked what the money would be used for and there was initially no answer. Finally Jeff Hughes says he would hire legal counsel, even though he is a licensed attorney!
The real lesson comes from Daymond, though. He mentions that he’s skeptical the franchise will attract interest and Jeff responds that they already have over 200 franchise requests. An incredulous Daymond responds with an easy solution: take $20,000 down payments from 10 of the requestors and they would have the $200,000 they’re trying to get from the Sharks. Indeed, if you already have orders, there are far cheaper sources of capital than selling equity. See my post on Innovative Funding Strategies for a few ideas, including asking customers to prepay or borrowing against purchase orders.
One final suggestion for Annie and Jeff Hughes: it’s the Shark’s money, treat them with respect. Whether Annie was nervous or angry at the way things were turning out, neither is an excuse for arguing with your potential investors. These people are buying something from you, taking a risk on you, and tying their financial future with yours. They have their reasons for joining you or leaving you and you will have to accept them or change their minds. Trying to beat them into submission is not a good negotiating tactic.
On the positive side, Caffeindicator was one of the most polished business plans I’ve ever seen. He narrowly targeted an extremely structured industry and planned to pit the four most common sweetener brands against one another in a war to either increase their own market share or suppress their competitors from increasing theirs. He didn’t even care if people used the actual sweeteners! By using the caffeine indicator on the packet, the customers would waste a packet that would increase the amount purchased by the restaurant and in turn increase sales for the sweetener manufacturer.
His presentation clearly indicated how he planned to leverage his patent in this space and it left the Sharks free to calculate their risk of success and return on investment, which is precisely where you want them to be. Kevin H. pulled an amazing negotiation trick by rushing an answer from Michael Schiavone before Kevin O. had a chance to make an offer and while Robert’s offer was still on the table. Pushed for an answer, Michael accepted Kevin H.’s offer which was the best on the table.
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The next episode of Shark Tank airs Friday, February 5 at 9/8c on ABC
