Rocco's Entrepreneurs Lose Mr. Wonderful Mid-Deal | Shark Tank US | Shark Tank Global

Summary

Elise and Sam pitch their innovative product, the Rocco Super Smart Drinks fridge, to the Sharks. It’s a stylish, functional fridge designed to keep drinks organized and easily accessible, with an app that lets users check inventory remotely. Despite the strong pitch and impressive sales figures, the Sharks are hesitant due to valuation concerns. Kevin makes an initial offer, but after deliberation, Elise and Sam modify the deal, agreeing to a royalty structure. They settle on a deal with a 4% royalty until Kevin recoups his investment. The Sharks are ultimately impressed, and the deal is sealed.

Takeaways

• 😀 The entrepreneurs, Elise and Sam, pitched their product, the Rocco Super Smart Drinks Fridge, which aims to declutter traditional kitchen fridges by offering a more organized and convenient fridge option for drinks.
• 😀 The Rocco fridge has a unique feature—a shelving system that accommodates all bottle and can sizes, from ginger shots to champagne, and even doubles as a bar cart.
• 😀 One key feature of the fridge is its app, which allows users to view the contents of their fridge remotely, making it easy to check what drinks are available while shopping.
• 😀 The fridge is priced at $14.95, with a discounted price of $12.95 for early access customers. The entrepreneurs aim for a $12 million revenue year based on their current sales.
• 😀 The fridge's production cost, including shipping, is around $750–$775 per unit, leaving a slim margin on each sale. Elise and Sam sell the product directly to customers, with over 3,000 units sold.
• 😀 Elise and Sam raised $1 million two years ago at a $10 million valuation but have since grown, generating $4 million in revenue in 8 months and becoming profitable.
• 😀 Despite the impressive sales and unique product, the valuation at $20 million is met with skepticism from the Sharks, who express concerns about the high risk and profitability projections.
• 😀 Kevin O'Leary, also known as Mr. Wonderful, offers $600,000 for 10% of the company, citing concerns over the valuation and the challenges of reaching $20 million in free cash flow.
• 😀 The Sharks point out that in order to justify the valuation, the company would need to achieve significant free cash flow, making the investment high-risk and challenging to secure returns.
• 😀 After much negotiation, Elise and Sam shift their offer to a royalty-based agreement with Kevin, proposing $50 per fridge sold until the initial $600,000 investment is recouped, with a final equity agreement at 4%.
• 😀 Despite initial hesitation, Kevin ultimately agrees to the new deal, offering $600,000 in exchange for a 4% royalty until he recoups his investment, making the deal a success for the entrepreneurs.

Q & A

What is the product that Elise and Sam are pitching to the Sharks?

Elise and Sam are pitching the 'Rocco Super Smart Drinks Fridge,' a stylish and innovative fridge designed for storing drinks. The fridge doubles as furniture and has a unique shelving system for different bottle and can sizes. It also features a patent-pending system that allows users to check the contents of the fridge via an app.

How much are Elise and Sam asking for from the Sharks?

Elise and Sam are seeking $600,000 for 3% equity in their company, Rocco.

How does the app associated with the Rocco fridge work?

The app allows users to see the contents of their fridge in real time. It automatically updates when items are added or removed, showing the fridge's contents shelf by shelf without needing to scan anything manually.

What is the current pricing of the Rocco fridge, and how does it compare to competitors?

The Rocco fridge is priced at $14.95, with early access pricing at $12.95. Elise and Sam mention that they recently bought a similar fridge, which was three times more expensive, making Rocco a more affordable option.

What is the cost of production for the Rocco fridge?

The landed cost of the Rocco fridge is around $575, and after shipping, which can cost between $130 and $160 depending on the location, the total cost is around $750 to $775.

How many units of the Rocco fridge have been sold, and what are the sales projections?

Elise and Sam have sold just over 3,000 units and are projecting $12 million in revenue for the year. They are profitable after just 8 months of being in the market.

What is the return on ad spend for Rocco, and how much are they spending on marketing?

Rocco has a return on ad spend of 5 times, meaning they spend approximately $250 per fridge on marketing, which accounts for 20% of their total revenue.

Why did the Sharks have a problem with the valuation of Rocco?

The Sharks felt that the $20 million valuation was too high. Mark Cuban pointed out that for Elise and Sam to return the $600,000 investment, they would need to achieve $20 million in net cash flow profits, which seemed unlikely given the product's stage and market conditions.

What deal did Kevin O'Leary offer, and what was his reasoning behind it?

Kevin O'Leary offered $600,000 for 10% equity in Rocco. However, he emphasized that the company's valuation was too high, making it a risky investment. He stated that to achieve the return on investment he would need, Rocco would have to generate substantial profits, which seemed unlikely at the valuation.

What was the final deal that Elise and Sam accepted, and what were the terms?

Elise and Sam ultimately accepted Kevin O'Leary's offer of $600,000 for 4% equity in perpetuity, plus an additional $300,000 once Kevin's investment was recouped. This was a revised offer after some negotiation and adjustments to the valuation.