In the very first episode of Shark Tank five business ideas were presented. Out of the five businesses presented two were able to secure an investment from investors, otherwise known as the "Sharks".
The businesses featured in this episode are:
Mr. Tod's Pie Factory
Emmy The Elephant
College Foxes Packing Boxes
The investors or the "Sharks" featured in this episode are:
Mr. Tod's Pie Factory
Tod Wilson of Sommerset, NJ runs a pie factory. In addition to having two retail storefronts Mr. Tod's Pie Factory wholesales to local retailers. Tod is asking the Sharks for a $460,000 investment in exchange for 10% of his company. He needs the money because he cannot keep up with demand and the banks will not give another loan. His company generates about $850,000 in sales and a net profit of about $170,000.
Tod comes across as a honest, hardworking businessman who is passionate about making pies. In addition to that, he shows that he is an entrepreneur who is willing to give back to his community. When the Sharks ask about is mascot, Mr. Pie-Man, he responded that the mascot is a major part of his program that rewards local students with pies who make good grades.
Other things that are important about his company:
One pie flavor, his sweet potato pie, makes up for 50% of his total sales and 94% of his wholesale sales.
The company has over 30 pie flavors even though the sweet potato pie is obviously their flagship product.
McDonald's is interested in selling his sweet potato pies in their restaurants.
Tod wants to use the investment for a new facility and marketing.
The investors all loved his pies and appreciated his story. However, Kevin O'Leary feels like Tod should only focus on his flagship product and dump the mascot. Kevin Harrington thinks that the company his company is overvalued. Robert Herjavec thinks that once Tod receives the investment he will try to expand to fast. O'Leary, Harrington, and Robert are not willing to invest.
Daymond and Barbara are interested in investing but they want 50% equity in the business. Tod ultimately agrees to partner with Daymond and Barbara.
Darrin Johnson has developed an implantable blue tooth device which he calls the Ionic Ear. The reason he created the device is to solve the problem of blue tooth devices falling off cell phone users' ears. He is seeking a $1,000,000 investment in exchange for 15% ownership in his company.
He immediately loses all the investors and probably everyone watching the program from home when he mentions that the customers would have to undergo surgery to implant the device. In addition to that, he mentions that in order to charge the device customers must stick a Q-tip type of device inside their ears overnight. Lastly, he says that if customers want to upgrade their phone, then they would have to undergo another surgery.
Long story short this pitch was a complete DISASTER. Take a look for yourself in the video below.
The Ionic Ear Pitch
Kevin Flannery has created a ad delivery system called Wispots. Wispots is supposed to be an alternative to watching TV and reading magazines in a hospital or doctor waiting room. The system consists of several web pads and a port to hold the web pads. The web pads would allow people to play games, view ads, complete surveys, and surf the web. Kevin is asking for a $1.2 million investment in exchange for a 10% stake in his business, a $12 million valuation.
The one thing that the Sharks are confused about is how the business works or the business model. Kevin explains that he will make most of his revenue from ad sales. He also explained that the installation costs for a Wispot system is $9000, in which the doctors or hospitals will pay for. The Sharks are not really convinced that doctors or hospitals are willing to pay $9000 to install his system.
Ultimately Kevin was unable to secure any type of investment from the Sharks for the following reasons:
The business model was not clear. The Sharks were did not understand how Wispots was going to make money.
Some of the Sharks did not feel like the idea was unique. One of the investors mentioned that if he wanted to check emails or play games he could use his cell phone.
Kevin had no sales for any of his Wispot systems.
The fact that Kevin was unable to secure financing was a devastating blow, considering that he has invested over $550,000 of his own money into the company. On top of that, he has mortgaged his house twice and depleted his children's college fund. One the investors, who was obviously sympathetic, mentioned that while it takes a lot of courage to endure, it takes a lot more courage to quit.
Emmy The Elephant
Tiffany Krumins a nanny from Georgia has come up with an idea on how to make it easier for people to give medicine to their children. As a nanny she was responsible for caring for a child with down syndrome. The child had an ear infection and when Tiffany tried to give him the medication she was met with a lot of resistance. In order to solve the problem she created a device with an elephant face and trunk complete with a recorded saying to coax the child into taking the medicine with little to no resistance. She continued to test the device with the child and encounter no problems.
Tiffany is seeking $50,000 in exchange for a 15% stake in her business. She plans to use the money to secure a patent for her creation, which she does not have.
Other things that are important about her business:
She only has a prototype.
She has no patent.
Since she has not manufactured any product she has no sales.
She has done limited testing on other kids outside of the child with down-syndrome. Although, she contends that if it worked with a kid with down syndrome, then it will work with other kids.
Some of the investors are very intrigued by her idea, however they have concerns. Kevin O'Leary feels like the business is just not large enough. Similar to O'Leary, Daymond John contends that it is just one product not a business. Kevin Haggerty likes the idea, but the product does not have a proven track record. Robert thinks that she should license her idea to a bigger company.
Barbara decides that she wants to invest in the company but she needs a bigger piece of the company. She offers Tiffany $50,000 for a 55% stake in her business. In the end, Tiffany accepts Barbara's offer and close the deal.
Ava(Emmy) The Elephant On Amazon
College Foxes Packing Boxes
Omar Soliman and Nick Friedman are seeking a $250,000 investment in exchange for a 25% stake in their business College Foxes Packing Boxes which is an all-girl moving service. The business is a spinoff of their existing business College Hunks Hauling Junk.
While College Foxes Packing Boxes is essentially unproven, College Hunks is bringing in $500,000 in profit annually. This fact puts the Sharks in a frenzy. The investors want to know why College Hunks, a business that is working, is not part of the deal. All of the investors agree that both businesses should be a part of the deal.
Kevin O'Leary immediately offers them $250,000 for 51% stake for both businesses. However, Omar and Nick are not really open to the idea of giving up ownership in College Hunks. Nevertheless, the investors persuade them to come up with a offer for ownership in both companies.
The investors are stunned when Omar and Nick offer them 10% of both companies for $1 million which is a $10 million valuation. Kevin O'Leary, one of the more outspoken Sharks, goes so far as to calling them pigs. In spite of all of that, Omar and Nick contend that this is what they feel that their company is worth or will be worth.
Kevin Haggerty and Barbara decide not to invest in the business because they feel the business is overvalued at $10 million. Barbara mentions that Omar and Nick want a valuation for what their company may be worth in the future versus what it is worth today. Daymond is out because he is not comfortable with the idea.
Robert offers Omar and Nick $250,000 for 50% of College Foxes and 10% of College Hunks. He says to think of the 10% in College Hunks as collateral if the College Foxes idea does not pan out. Ultimately, Omar and Nick decide to pass on Robert's offer because they did not want to give up any ownership in College Hunks.
Wrap-Up of Shark Tank Episode 1
The show was very entertaining especially during the Ionic Ear and College Foxes presentations. The show also put into perspective the amount of risks that are involved starting up and running a business.
Emmy the Elephant - Even though Kim was only armed with a prototype, she had a unique idea that solved a problem in the marketplace.
Ionic Ear (Complete Disaster) - This guy wanted to surgically implant a blue tooth in customers. How many people are asking to undergo surgery?
"Here is how I think of my money...Soldiers...I send them out to war everday. I want them to take prisoners and come home...So there's more soldiers...Your army every soldiers dies. When there are no more soldiers your wiped out." - Kevin O'Leary
Omar Soliman and Nick Friedman of College Foxes were also featured on reality TV show Millionaire Matchmaker.