Editor’s Note: This is the second post in a new series examining the deals presented on the popular ABC television show Shark Tank through the eyes of a venture-capital investor.
This time I'm going to analyze the Plate Topper pitch from week eight of season four of Shark Tank. It's an interesting tale of an entrepreneur who very nearly snatched defeat from the jaws of victory.
Michael Tseng has developed a microwave-safe, dishwasher-safe, vacuum-sealed, food cover that sits over a plate to keep leftovers fresh. He has sold it on QVC and at Walmart.com, and has seen some terrific success. His first on-sale at QVC generated $65,000 worth of orders, but this increased to over $1,000,000 in just four months. He sought $90,000 in exchange for 5% of the company in order to fill the large purchase orders that he had from QVC and Walmart.
Several of the sharks bit right away. They all identified the low equity being offered as a major issue for them. Kevin O'Leary made the first offer; $90,000 for a 5% royalty. As he said "I don't get up in the morning for 5% ownership". And he is right. Most early stage institutional investors will be looking for north of 20% of the company in exchange for their investment. When they are taking early stage risk, they want to see the opportunity for meaningful returns.
Lori Greiner and Daymond John quickly made offers as well, one for $900,000 for 30% and the other for $1,000,000 for 25%. They offered more money and at a higher valuation than Tseng had asked for.
Tseng made it clear that he was looking for a higher valuation, but at first he would not put a number on the table. He wanted the sharks to bid against themselves. This rubbed John the wrong way, and he pulled his offer. Lori too stepped back her offer, taking it down to the $90,000 for 5% that Tseng had originally asked for.