The final entrepreneurs into the Shark Tank this week presented their business The Elephant Pants and were seeking $500k in exchange for 10% of the business. They have developed a line of harem pants and other apparel, and 10% of the profits go toward helping save elephants.
As for their numbers, the pants retail for $24 and cost $6 to make. They have seen $7Mill in sales in the past 2 years, with 95% of that being online and the other 5% from wholesale. So far they have given $115k toward saving the elephants. They are heavily into social media marketing, with a Facebook campaign just a month before filming that saw sales of $430k from an investment of $75k.
Just like we already talked about with Sandcloud, this is another business where it is more about the social cause than the product. People can go elsewhere for this kind of apparel, and they might actually like other people’s designs better, but the attraction of part of your purchase going to a good cause is a powerful marketing tactic. Now, don’t get me wrong, I’m not saying this is a bad product! I personally don’t find that kind of style appealing, but regardless of my interest in it, it’s easy to see that there is not much that is actually unique about the business besides the social cause. There’s really nothing wrong with that though!
All that being said, this kind of business is grown by one thing and that’s a strong marketing strategy. These guys obviously understand that, because they are investing heavily in their social media presence. As of the filming of their episode they had 230k followers on Facebook and 116k followers on Instagram. Those are some pretty insane numbers for a clothing company like this.
While we are on this topic, I would like to comment on Mark’s reason for dropping out. He said something to the effect of, “Facebook giveth and Facebook taketh away.” Now, that is technically true. Policy changes over at Facebook have made marketing professionals rip their hair out on several occasions in the past, but the people who have the hustle and talent to pivot and adjust to those changes always come out on top. These two guys obviously know what they are doing in regards to social media and I’d wager they can handle any policy changes that might be coming up.
Anyway, let’s move onto the deal they made. I am not going to run through all the back and forth, but they ended up making a deal with Daymond at $500k in exchange for 15% equity and 2.5% in advisory shares. I believe this is the first time we have ever seen advisory shares used for a deal in the Tank. For those who don’t know, advisory shares are defined as:
Shares set aside to compensate advisors that don’t affect the value of equity sold in the future.
This proves to ease the minds of their current investors that came in at what is essentially a higher valuation. For example, let’s say they came in at $500k for 15%. That would be a $3.3Mill valuation. If Daymond came in at $500k for 17.5% straight equity, that would be a valuation of $2.85Mill. That would not be all that fair to those investors and could result in a down round depending on how far into their funding these entrepreneurs currently are.
At the end of the day, I think this was a solid way to structure this deal and I’m glad Mark piped up with the recommendation. It’s rare to see the Sharks helping the entrepreneurs, but it’s always nice to see when it happens. So good luck to the guys over at The Elephant Pants! I hope this new partnership with Daymond allows you to save thousands and thousands of elephants!