In seven seasons of “Shark Tank,” every time an entrepreneur has made a last ditch effort to secure a deal after all five investors have bowed out it usually ends up being awkward and embarrassing.
But in the latest episode of the reality pitch show, instead of getting harassed out of the Tank by Mr. Wonderful as she plead for money, Hatch Baby cofounder and CEO Ann Crady Weiss laid out a carefully constructed alternate plan that the investors were willing to hear out.
And although billionaire investor Chris Sacca, a guest Shark, declined to make a deal with her a moment before, Weiss changed his mind and ended up with a $250,000 investment.
It was a great demonstration of the effectiveness of prepared negotiation strategies delivered with utmost confidence. “Who knows if it was entrepreneur virus (unfailing belief!) — but it worked,” Weiss told Business Insider.
Weiss and her husband/cofounder/CTO, David, entered the Tank looking for $250,000 in exchange for 2.5% of their pre-launch “smart” baby accessory company. Hatch Baby’s premiere product is an electronic changing pad with a built-in scale that can be linked to a smartphone app.
Parents of infants can keep track of their child’s weight, length, and frequency of diaper changes. The scale is sensitive enough to weigh how much breast milk or formula a baby consumed in a sitting through a comparison of before-and-after weighings, one of the primary features that compelled Weiss and her husband to create the product.
Before committing fully to Hatch Baby in 2014, the Palo Alto-based parents of three left executive-level jobs at BabyCenter, Johnson & Johnson’s independently operated online resource center read by 35 million parents around the world each month. Weiss joined the site in 2007 when she sold her social network Maya’s Mum to BabyCenter for an undisclosed amount.
“So you’ve got great experience. You’ve sold me on that,” investor Robert Herjavec told the cofounders in the Tank. But he and the other investors needed convincing that a pre-launch company with no sales was worth $10 million, especially when they consider the $299 price tag of the changing pad to be above too many budgets.
Weiss explained that the valuation was based off an upcoming Series A round of fundraising, following a seed round in September 2014, where Hatch Baby raised $1.7 million as a convertible note, meaning the money was a loan that would convert to equity at a valuation set at a later time. The cofounders also said their experience in the industry proved to them that in a market where parents will shell out $500 for a stroller, a $300 advanced changing pad is not a long shot.
The Sharks were still wary of making an investment at such a high valuation before a proof of concept, and all five pulled out of a deal.
In the beat where the cofounders would say “thanks” and walk out, Weiss told the investors, “I’m so sorry to hear that, but I do want to take one more shot.” She said that she was certain she could raise the money elsewhere, but she wanted a Shark since they are typically more hands-on than average investors.
She jumped into a second offer: There was $250,000 left on the convertible note from last September, and so she could bring a Shark on under those terms, which included a $7.5 million cap on valuation. That means that the investor would give Hatch Baby $250,000 as a loan that would eventually be converted to a minimum of 3.3% equity.
Weiss said later that she didn’t think of this on the fly. “We’d definitely planned the second offer,” she said. “Given what we’d seen on earlier shows, we knew the $10 million valuation we started with would be a very tough sell. I worried they might berate us and laugh us out of there — and I didn’t eat or sleep well for days because of it.”
Sacca, who had expressed his interest to Weiss in the potential for Hatch Baby becoming a leader in “smart” baby products that could help parents monitor their infant’s health and track their growth, decided that under those new terms he’d be willing to take a bet on the company.
Weiss said that even though the footage didn’t make the aired episode, Sacca was further swayed by her and her husband’s explanation of how True Ventures, whose portfolio includes success stories like Blue Bottle Coffee and Fitbit, was going to be involved in an upcoming Series A round; following the segment’s filming last June, True Ventures led a $7 million Series A in October.
Sacca said that he has invested again in Hatch Baby since filming, and while he could not yet disclose the terms, he told Business Insider “it was a healthy markup from my initial investment” and that he’s “bullish” on the company and feels lucky to be invested so early.
Neither Weiss nor Sacca would comment on whether the company was meeting its initial goal of 20,000 units sold in its first year of launch, but Sacca said it had a successful launch last October and is building off “Shark Tank” momentum in the past week.
“The reviews are strong and the sales kept accelerating even before ‘Shark Tank’ aired,” he said. “2016 is going to be a huge year for Hatch Baby.”
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