THE FOLLOWING IS A ROUGH TRANSCRIPT OF THE VIDEO ABOVE
The first entrepreneurs into the Shark Tank this week were presenting their business Wine & Design and were seeking $500k in exchange for 10% of the business. They have developed a business that allows people to take painting classes from local artist while sipping on their favorite wine. They have several experiences, including a bachelorette package that features a nude model!
As for their numbers, they charge $35 for a class. In their first 9 months before they started franchising, they saw $250k in revenue. Over the last 5 years they have grown to 74 locations. They take a 6% royalty on the revenue of each location and collect a $25k franchising fee. In the last year, their franchises saw $10Mill in revenue and they expect to grow to $12 - $13Mill next year.
Now, in case you didn’t see my Thursday video last week, I was actually invited out to take part in one of their classes! No, it was not the bachelorette package that was previewed during their presentation. It was just your ordinary painting class with wine, and I had so much fun! And I walked out with this beautiful work of art! I know...it’s nothing spectacular, but it’s better than what I thought I’d be able to do! I even think I saw this design displayed amongst their examples during their presentation!
Anyway, all that being said, let’s start to breakdown some of the things the Sharks said, some of the decisions that were made, and one major point that was curiously left out...
First, let’s talk about what wasn’t said, and I actually had to rewatch the presentation to make sure I wasn’t mistaken about this. But Wine & Design doesn’t sell wine at their classes. Now, they never said they did during the presentation, but they also didn’t clarify that the classes are “BYOW”. You have to bring your own wine to the class, which I think it great because it adds a whole other layer to the social interaction with other people in the class that you wouldn’t get if the wine was sold there.
“Where did you get that?”
“Can I taste that?”
Why I wanted to point this out is that I feel it could be a bit of bad marketing for the business. People who just saw the Shark Tank presentation, assume the wine is sold there during the class, sign up for one, and show up empty handed might not be too happy about the lack of clarification.
Even on their website, the BYOW aspect isn’t explicitly stated. The only line on the homepage that references bringing your own wine says, “Bring your friends or significant other along with your favorite bottle of wine to one of our two-hour classes...”
There is clarification in a more bold font on the page where you sign up for your class, but I feel like they should be more clear and up front about it before someone gets to that point.
Anyway, let’s move onto the valuation because this is where it gets a little crazy.
They walked in looking for a $5Mill valuation while saying that they project $350k - $450k in profit next year. Now, that’s not bad in and of itself. We’ve probably seen businesses walk in with less profit for such a valuation, but that’s where it comes down to growth potential. The founder’s themselves admitted that they had seen their growth slow and they have been stuck in 3rd place now amongst other businesses doing something similar.
If they stay stagnant, and let’s say they are never able to break higher than $400k in profit, it would take the investor around 12.5 years to simply get their money back if they went with the offer that these entrepreneurs walked in with. If the Sharks were confident that they could grow this business by 10x in the next 5 years, which is something we see with some of the businesses that come into the Tank, then that valuation would make a lot more sense.
In light of all this, Kevin put out a deal that did actually make a bit more sense. I think he low balled them a bit and really overly minimized his risk in the equation, but they landed on a deal with Kevin for $150k in exchange for 10% with a $350k loan at 12% interest.
Now this obviously brought them down from a $5Mill valuation to a $1.5Mill valuation. But then Robert jumped in with the exact same valuation, just structured differently. He didn’t want to mess with loans, so he just offered $500k of a third of the business. Same valuation, different structure.
With these two offers on the table, they ended up going with Kevin and I can understand why. First of all, they get to keep an extra 23.3% of their business. Always enticing. As well, Kevin’s influence in the wine business could be a polarizing factor in their marketing.
The one thing I worry about is that loan because it makes up about a years worth of profit for them. Obviously, the hope is that the extra capital and Kevin’s influence will help so much that it makes the loan much easier to pay off. But taking out a chuck of money that could eat up an entire year’s worth of profit just sounds so scary to me. Obviously it’s not the scariest deal we have seen in the Tank by far, but it’s just something that stuck out to me as worth touching on.
But that’s where I’m gonna end it! I know this was a long one, I had a lot to talk about. And I do wish the best to these guys! Like I said, I really enjoyed the class I attended last week. If there’s a location in your area, then I would highly recommend just trying it out. You get to do something fun, unique, and educational for just $35 and the price of whatever bottle of wine you choose to bring along.
And you know what else is awesome to do while sipping your favorite wine? Listen to Audible! By going to AudibleTrial.com/JeremyJasonA you can get a free audiobook of your choice! There’s actually several books on Audible written by the Sharks themselves, so your could check those out or do what I do and listen to the Harry Potter books…over and over and over and over…..
So if you want a free audio book from audio click the link in the description or go over to audibletrial.com/jeremyjasona!