Two “Shark Tank” entrepreneurs show that if you’re indecisive in a negotiation with an investor, you risk appearing amateur, arrogant, and untrustworthy. And you will probably go home with nothing.
In the latest sixth-season episode of ABC’s hit pitch show, San Francisco-based entrepreneurs Lei Yu and Tyler Freeman present their company DrumPants, which sells wearable technology that uses your smartphone’s Bluetooth capabilities to turn your body into a full band. Its secondary features, which Yu and Freeman explain they plan to expand on, can be used to do things like control presentations with a small pat on your pocket.
After raising $US74,000 on Kickstarter in January, well past their $US35,000 goal, they ask the Sharks for $US150,000 in exchange for 5% equity to take the product past its beta stage. That would give their company a $US3 million valuation.
Freeman and some friends give the investors a demonstration, which investor Robert Herjavec rocks out to:
Yu explains that they have secured 720 pre-orders for the product, which launches later this year, and that they predict they will have $US220,000 in sales by the end of 2014.
Investors Lori Greiner and Kevin O’Leary find DrumPants interesting but aren’t convinced that it’s anything more than a niche product, so they bow out.
Herjavec agrees that he doesn’t imagine millions of people would want to buy a full-body instrument, but he’s taking a long view and is interested in the next step for the company. He offers $US150,000 for a 20% stake.
Investor Daymond John asks the entrepreneurs if they’re interested in licensing the product, to which Freeman says, “Definitely,” as Yu nods in agreement. He offers $US250,000 for a 20% stake, saying he would help secure a company to add DrumPants to its catalogue to get upfront cash and guaranteed annual minimums.
Yu and Freeman ask if they can step into the hallway to discuss.
“You know what happens in ‘Shark Tank’ when you leave the tank? Nasty, nasty things,” O’Leary warns. “What is wrong? You’ve got two offers. You’ve got to make a decision.”
John agrees but lets the cofounders take a moment to talk it over. Away from the investors, Freeman expresses interest in John’s offer while Yu says he doesn’t seem to understand the full capabilities of the technology. The investors beckon them to return, and Freeman and Yu come back without a plan.
Freeman asks Herjavec if he’d drop his stake from 20% to 15% for the same $US150,000, which is met with silence. Yu adds that it would be great to get a joint offer among the remaining Sharks.
By this point, John is frustrated and says that their indecisiveness has forced him to withdraw his offer.
Herjavec, also visibly annoyed, says he is going to stick with his original offer. Freeman spends a moment looking at Herjavec before asking investor Mark Cuban, who previously had suggested Herjavec’s offer sounded good, if he’d like to add anything.
“I think what your challenge is, and you’ve probably been hearing it your entire lives, is that you’re both very deliberate,” Cuban says. O’Leary says they’re the opposite, but Cuban finishes his point.
“But that’s part of the problem, right? Sometimes the perfect is the enemy of the good. Right? Paralysis via analysis,” Cuban says.
He explains that he was trying to figure out if his suspicion that the two were unreliable was true. The product has potential, but it needs a definitive push in a specific direction, and Yu and Freeman proved they wouldn’t be willing partners in a growth plan. He says he’s got no deal.
At this point, Herjavec has had it. He tells them that he had to withdraw his deal as soon as they asked for Cuban’s opinion after Herjavec declared his offer.
“This is an incredible example of two entrepreneurs who are incapable of making a decision,” O’Leary says. Yu begins to explain why they’re still worth it, and continues to talk as Cuban, John, O’Leary, and Herjavec start yelling for her and Freeman to leave.
“That was the first date! Imagine what would happen after that,” John says, referring to what it would be like to work with the DrumPants’ founders over the long term.
“I guarantee you this happens to them every day of their lives,” Cuban adds.
You can watch the full episode over at Hulu Plus.
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