Cup Board Pro: More than a Kitchen Aid

Authored by: Quinn Donaldson

The late Keith Young along with his three children, Christian, Keira, and Kaley, hit a home run with the Cup Board Pro. Created by former NYC firefighter and two-time Food Network Chopped Champion Keith Young, this product aims to save time and prevent kitchen messes with its patented cutting board design. Small wells on one side of the board send spills directly to the plastic cup at the edge of the board, preventing liquids from spilling onto the kitchen table. It’s also perfect for collecting chopped food items without leftover mess.

The Cup Board Pro was invented in 2010, but the venture was put on hold twice after cancer struck both parents at separate times in the last decade. Unfortunately, the Young family lost its mother and father to cancer in May 2012 and March 2018 respectively. Motivated by their parents’ love and their father’s passion for cooking and the FDNY, the Young children continued to pursue their father’s dream of making Cup Board Pro a realty and pitching it on Shark Tank.

The Sharks were incredibly moved by the Young’s story and equally as impressed with the product. The Sharks see great value in the patented design, bamboo wood quality, and removable, dishwasher safe cup component. The company sold 15% (or 300 units) of their inventory in the first three weeks after the company’s online launch, showing some initial demand and marketing success. What’s most impressive to the Sharks is that the Youngs are operating the business entirely on their own; executing sales, the marketing campaign, and distribution from their living room.

After briefly deliberating amongst themselves, the Sharks respond to the Young’s $100k for 10% equity offer in unique fashion. All five Sharks agree to counter the Young’s original offer by asking for 20% equity. Furthermore, all the Sharks agree to donate any profits they receive from their equity stake to the FDNY Foundation supporting NYC firefighters affected by 9/11 cleanup-related health issues. The Young’s immediately accept the Sharks’ counter and exit the Tank with a future for Cup Board Pro and an even stronger foundation for Keith Young’s legacy.

Analysis 

Cup Board Pro was a no-brainer for the Sharks. They all acknowledge that their expertise and networks can easily sell the remaining 1,700 units in inventory. Furthermore, the Young’s story, commitment to the business & FDNY Foundation, and Keith Young’s ingenious design is a near perfect recipe for continued sales and growth. Cup Board Pro’s $12.50 per unit cost will certainly go down as the company’s production volume increases, and the $40 retail price is in line with similar products.

The $1 million valuation wasn’t totally unreasonable, but a bit too high for the Sharks at this stage in Cup Board Pro’s life. If we annualize the company’s $12,000 in sales, the Youngs valued Cup Board Pro at a 7x EBITDA multiple ($1 million/$143k annualized profit = 6.99x). Agreeing to a 3.5x multiple is a win for both parties; the Youngs keep 80% of a promising product and the Sharks receive an attractive entry point in a straight-forward business they know they can grow and scale. The Sharks’ extra 10% will go a long way for the FDNY Foundation down the road.

Getting Cup Board Pro into every kitchen in America will take massive marketing and sales efforts. All five Sharks, especially Lori, will be able to use their expertise and distribution connections to help the Youngs grow efficiently as they enter new markets and tackle the challenges that come with scaling. Outside of sales, marketing, and Cup Board Pro’s valuation, my only critique is for Keira, and it’s very nit-picky – easy on unnecessarily using the word “like” when answering questions. She’s the youngest so I’ll give her a pass.

Finally, I cannot stress enough how important the Young children are to this product. The product and its story combined can capture audiences from all sorts of backgrounds. But the key ingredient is the Young’s determination and ability to battle through adversity. The fact that these young adults managed to launch this product and immediately produce sales only three months after losing their second parent to cancer more than proves how strong and resilient they are. Those traits alone will help them through the trials and tribulations ahead, but the love for their parents and father’s legacy will be the never-ending fire that fuels them to success in all that they do. The Sharks will sleep a little easier at night knowing that Cup Board Pro is in good hands.

Made for Kids, By a Kid: Le-Glue

Authored by: Ian Gyan

Children usually seek out the guidance of a trusted adult to solve their problems. But sometimes they don’t, sometimes the adults don’t even notice the problem. So when they’ve broken their toys and made a mess, what is a child to do?

Tripp Phillips has the answer. He showed The Sharks why you should never send a man to do a boy’s job. On episode 1 of Season 10, the enthusiastic 12-year old entrepreneur, along with his sister, Ally, and father, Lee, walked into the Shark Tank looking for an investment for his product, Le-Glue.

Le-Glue is a non-permanent, non-toxic adhesive used to secure Lego and other children’s building blocks together. It dissolves in water, so kids can use it repeatedly on their toys. During his witty presentation, Tripp revealed his frustration over never being able to play with the toys he built before they fell apart. This was the reason he and his father created Le-Glue, and luckily, it solved two issues. Children could build and play with their Lego, and adults wouldn’t have to worry about accidentally stepping on their children’s toys.

The young entrepreneur confidently requested $80,000 in exchange for 15% of the company, an ask so favorable that The Sharks didn’t bother commenting on the company’s valuation. The product’s value was clear, and Tripp had the numbers, accolades and vision to back it up. Over its lifetime, Le-Glue had sold over $125,000 worth of product and was already secured by a utility patent, making Tripp one of the youngest patent holders in U.S. History! His clever goal was to partner with various toy brick manufacturers, negotiate a license agreement, and get Le-Glue included in all of their toy kits. But what truly made The Sharks perk up was the impressive margin between the 43 cents it cost to make Le-Glue and the $8.99 (now $5.99) price it was being sold for on his website.

Hearing these numbers, it’s no surprise that some of The Sharks decided to jump into the frey. Kevin wasted no time, offering to provide an $80k investment in exchange for 50% of licensing royalties until he recouped his initial investment, after which, a partnership in perpetuity would be established where Kevin had a 20% stake. Kevin further sweetened the deal by basing his shares on the condition that he could successfully negotiate a licensing agreement. Knowing a great deal when he saw one, Jamie Siminoff, the former contestant turned Shark, commended Kevin on his “wonderful” offer before backing out.

Daymond, however, stepped forward to outbid Kevin with a simpler offer of $80k in exchange for 25% of the company. At this point, Lori could see that either deal would lead Tripp and his family to success, so she decided to not get her fins wet this round and also backed out. Mark soon followed suit and backed out as well, saying that he couldn’t provide an offer better than the two that were already laid out.

Le-Glue was nicely positioned to jump to the next level, but instead of immediately giving in to either offer, Tripp made Daymond a savvy counteroffer. He set his new ask at $80k in exchange for 20%, but Daymond wasn’t impressed and stuck to his original offer, as he was already asking well below his usual 33% stake. With three Sharks out and two great offers floating in front of him, Tripp was left to make a choice. After a nervous moment of silence and quick word in his father’s ear, he announced to Mr. O’Leary that he’d like to do business.

Welcome to Season 10

Welcome back to a brand new season of Shark Tank, the number one business reality show on TV!

After 9 seasons of Shark Tank, you can be certain that the pitches will get better and better and that there will be more record-shattering deals made in the Tank than ever before! Shark Tank continues to prove that the American Dream is alive and well, and that there are no limits to what you can achieve if you work hard to succeed.

At Blog Shark Tank, our goal is to critique the entrepreneurs that enter the Shark Tank, and evaluate their performance in terms of pitch, product, and overall performance. It is not easy to stand up and face the Sharks, let alone to walk out with a deal, and we applaud every entrepreneur that lives to tell the story of how they made it out alive!

So join Blog Shark Tank this season and read our critiques on the brave (and sometimes wild) entrepreneurs. Participate in our discussions on social media, and share your thoughts with us and Shark Tank fans all over the world!

In The Shark Tank, It's All About Valuation

By: David Bookbinder
Director of Valuation Services,
GBQ Consulting

Why do the entrepreneurs and the Sharks differ on valuation? 

The entrepreneurs are passionate about their business and believe their vision of the future will turn out exactly as presented. The Sharks, on the other hand, know from experience that a lot can go wrong and that most small businesses fail. Therefore, if the Sharks are going to write a big check to an entrepreneur, they will need to get a substantial rate of return on that investment to compensate them for taking the risk.

Let’s start with an example. You already know that when the entrepreneurs ask for their desired investment, they’ve placed a value on their company. For example, asking $100,000 for a 10% stake in the company implies a $1 million valuation ($100k/10% = $1M).

But if the Sharks feel that the business is really worth only half of that, they would counter with an offer of $100,000 for a 20% stake. ($100k investment /20% ownership = $500,000 valuation)

If the valuation isn't right for the Sharks, they will pass on the deal, but have you ever wondered how the Sharks determine their valuations?

Sharks are experienced investors and they arrive at their valuations very quickly. But don’t let their speed fool you into thinking that they are simply guessing or just being greedy. Although not apparent to the viewer, the Sharks are utilizing several methodologies in arriving at their valuations. Allow me to explain what’s behind their questions and how the Sharks arrive at their valuations.

It all starts with the Sharks asking questions about recent sales, but their real focus is on what the business is expected to achieve in the years to come.

This is because, at its essence, the value of a business is equal to the current value of what it is expected to earn in the future. In other words, valuation is less about “what have you done for me lately” and more about “what will you do for me tomorrow?”

So the Sharks will estimate the earning potential of the business for the next few years, and with a Shark-like required rate of return to compensate for risk, those estimated future earnings can be converted into a current value through a mathematical technique known as discounting. This is the premise of an Income-based valuation methodology known as a discounted cash flow analysis.

Without getting into the detail, the important considerations behind the math of a discounted cash flow analysis are: 1) the greater the risk of the investment, the higher the required rate of return to compensate for that risk; and 2) the higher the required rate of return that is applied to expected future earnings, the lower the present value of those future earnings.

Without even doing the math, you can understand why the Sharks will not pay a high price for an extremely risky investment.

But the Sharks will do the math, so they know what the risk-adjusted value of the next few years of estimated earnings are worth.

However, those next few years of earnings only tell a part of the story and represent but a portion of the total value of the business.

To get the rest of the story, the Sharks also need to determine the value of the earnings in the years that follow these near-term estimates.

Trying to estimate future earnings for another 10 or 20 years is an exercise that can tax even the best crystal ball, but the Sharks can shortcut the process by considering how long they intend to remain invested in the business, and at what price they might be able to sell their investment at that time.

To estimate the total value of the business, the present value of the exit price is added to the present value of the estimated near-term earnings.

All of this happens in mere minutes on television… but this is just one method for determining value.

The Sharks will also use a Market-based valuation method, which is based on metrics by which similar businesses have transacted. If you've ever bought a house, you already understand the principles of comparison and substitution that are inherent in a Market-based valuation method.

For example, when comparing the relative value of different houses, you can calculate the price per square foot to help make an informed decision about what you’re getting for the money. This is a type of valuation multiple.

Similarly, when companies are sold (or traded on a stock exchange) their valuation is often expressed as a multiple of sales or earnings. So when you hear the Sharks talk about “the multiple” when discussing the entrepreneur’s valuation, they are referring to the implied multiple of sales or earnings expressed in relation to the overall valuation.

For example, if the entrepreneur’s desired valuation is $1 million and the business generated $10,000 of sales last year, the price/sales multiple is equal to $1M/$10k, or 100 times last year’s sales. The Sharks will assess these valuation multiples on a forward-looking basis as well (i.e., as a multiple of next year’s estimated sales).

When you hear the Sharks complain that “the multiple is ridiculous,” you’ll know that the lower the financial performance metric (the denominator), the higher the implied multiple; and the Sharks are not keen on paying high multiples for performance that may never materialize.

Other factors that the Sharks might consider in their valuation include intangible assets, like the value of the brand, patents and people. They will also assess how a particular business might fit in with other businesses they already own (synergies) as well as the fact their affiliation alone will likely enhance the value of the business, although investors are generally not inclined to pay for what they bring to the table.

Having considered Income-based and Market-based valuation methods, the Sharks have a good idea of what the business is worth, but they aren't done yet.

Unlike an investment in stocks, an investment in the Shark Tank can’t be exited in a matter of seconds with a sell order. The lack of a ready market to sell the investment reduces the value of the investment, so the Sharks must also consider a discount for the lack of liquidity.

Lastly is the matter of who calls the shots. The Sharks want control and the entrepreneurs do not want to give it to them.

So the Sharks will also need to consider a discount for lack of control when taking a minority stake.

The Sharks now have their valuations – and let the negotiations begin!

So the next time you’re watching Shark Tank, you can impress your friends with your knowledge of valuation.

That's all I have to say on this subject, so for that reason... I’m out.

______________

About the Author:

Dave Bookbinder is a Director of Valuation Services at GBQ Consulting where he helps his clients with the valuation of businesses, intellectual property, and complex financial instruments. More than a valuation expert, Dave lends his business experiences to help people with a variety of matters.

Spy Escape and Evasion: Flashback and Flash Forward

"The name's Hanson. Jason Hanson".

Just a few episodes ago Shark Tank fans all around the country watched as former CIA officer, Jason Hanson, covertly stood and mouthed these words in front of the Sharks before pitching his extremely unique business. Spy Escape and Evasion is a seminar for everyday civilians to go to learn safety and survival secrets from a man who has needed to use them to survive his career.

Flashback:

Jason asked the Sharks for $100,000 for a 15% stake in his company, which as of then had gross sales of $306,000 and profit of $128,000. As part of his presentation, Jason called upon a couple of volunteers from the Shark audience to try out some of his tactics. First, Barbara went up and tied Jason's hands tight with duct-tape, only to see him break out of it a few seconds later - without breaking a sweat. Next, Robert went up to serve as the victim, as Jason tied his hands together with a strong zip-tie. But Robert was also able to break out of this with the parachute-cord shoelace Jason was wearing.

While all the Sharks watched with amazement, Kevin's mind seemed to be thinking of ways to destroy this entire business. He asked Jason how he was allowed to be sharing these secrets with regular civilians. But to his surprise, Jason answered that he already spoke with the agency and got clearance. Roger that Kevin?!

With an investment from the Sharks, Jason was planning on opening a huge training facility in Utah where people will come in for a two day course. Day 1 would be learning the skills (getting out of ducktape, picking locks, detecting surveilance, etc,), and Day 2 would be actual missions with enemies and obstacles. The Sharks though didn't like this plan. They argued that people would not take the time to fly over to Utah to learn these skills. Instead, they proposed that Jason continue with his current business model (which seemed to be working) of flying to heavily-populated cities and giving the seminars there. Jason made it clear that he was definitely open to changing his business model, and with that, the Sharks were quite interested in partnering with him. Well, at least Robert, Daymond, and Mark were.

Robert was the first to make an offer, offering $100,000 for 50% of the company. He felt that this was a reasonable deal because the business model had to still be perfected, which would require more of his time and effort. Daymond insulted this offer calling Robert a greedy savage, and then made a competing offer of $150,000 for 45%. Because Mark was still on the fence and the other Sharks were out, Jason accepted Daymond's time-sensitive offer and walked out of the Shank Tank, mission accomplished.

Flash Forward:

After making a deal with Daymond, Spy Escape and Evasion has been unstoppable. In the first week after airing on Shark Tank, the company did $200,000 in sales, which previously took over 8 months to do. Since then, Spy Escape and Evasion has done a $1.2 million royalty deal with a survival company, been featured on the Rachael Ray Show, and is in the process of publishing a book and creating a TV show. Talk about the Shark Tank Effect! Daymond has clearly been instrumental in helping grow this business and is in touch with Hanson and his team on a weekly business. The company has also improved its online presence with their brand new website, http://www.spyescape.us.

Jason Hanson will be flying to many different cities to give his seminar and teach regular civilians the secrets he was taught as a CIA officer. It is the chance of a lifetime to learn from a true master in espionage, so be sure to sign up!

@ Cinnaholic: The Sharks just Changed your Business Model

By: Pete Troshak
Twitter: @Shak74
Website: www.Shak74.com

Florian and Shannon Radke are the owners of Cinnaholic, a cinnamon bun company that offers a unique boutique retail experience featuring delicious cinnamon buns (judging by the reactions of the Sharks) with over 30 frosting and 30 topping choices for customers to customize their cinnamon buns. Their buns are safe for people with food allergies; they contain no dairy or egg products and are cholesterol free. This makes their product safe for the over 50 million Americans with an intolerance for dairy, and 5 million people with severe food allergies. Cinnaholic’s buns are also 100% vegan, which is a popular buzzword in food today and a consistently growing market. The have one retail location and did $260,000 in sales last year, and were asking $200,000 for 20% of the company to open up another retail location. They have a minor online sales presence but seemed to have their hearts set on expanding through more physical locations, and not cyberspace.