The debut of Shark Tank Australia was full of valuable lessons for startup founders pitching for funding

Image: Channel 10.

The first episode of Australia’s Shark Tank aired on Channel Ten on Sunday night.

Facing the five sharks were hopeful Australian entrepreneurs pitching their ideas for funding.

The five judges – tech investor Steve Baxter, real estate entrepreneur John McGrath, Boost Juice founder Janine Allis, Talent2 MD Andrew Banks and RedBalloon founder Naomi Simson – put up their own money for the deals.

One of the rules was if the entrepreneurs didn’t secure the full amount of funding they were pitching for, they walked away with nothing.

The first episode provided an insight into what it’s like to pitch an idea to venture capitalists. The questions they ask, deals they offer (or don’t), opinions they put forward, and how they negotiate.

The first idea pitched to the judges was an esky which doubled as cricket stumps. The two founders launched in September and have sold 4,000 coolers at $89.95 each.

Cricket Cooler co-founders Adam Dubrich and Leigh Warren were looking for $280,000 in return for a 20% equity stake in the company.

The founders ran a Kickstarter campaign last year raising over $41,000 from 125 backers.

They explained it costs them $40 + GST to manufacture each unit. The current company structure is split three ways with each partner currently holding a 33% stake. Taking on the investment would dilute the current partners’ stakes.

But the work ethic and expectations of the founders – they wanted to take salaries of about $150,000 each – had a couple of judges telling them to take a reality check and rethink their attitudes.

“You’re not entrepreneurs. You want safety and you want no risk,” Baxter said, adding he promised himself he wouldn’t invest in people with that attitude.

While McGrath said the idea was “very clever,” he said: “I’m concerned this could be a one-hit-wonder. I’m looking to invest in businesses which have a recurring revenue.” And with that he was out.

Allis said she didn’t take a salary for three years while she was building Boost Juice, she said her family home was sold and eventually when a salary was drawn it was $30,000 a year.

The founders were after working capital to fund the production of more coolers. The only offer came from Simson who put up $80,000 for a 20% stake plus offered a $200,000 loan to the company.

“We don’t want to devalue our business,” Dubrich said, adding: “We generally feel that we’ve valued our business accurately.” He countered with a 10% equity stake for $200,000.

The counter offer was rejected by Simson and the boys decided to take her original terms.

“We really need the capital now. We’re going to make a bucket load of money for you and for us and we’re going to make the deal.”

The next idea pitched came from Toowoomba resident Darren Smith. His business is called Rent Resume and is a subscription service tenants pay for in return for a rental history report.

He was asking for $2.5 million in return for a 40% stake in the US operations of the company which he is yet to start.

Baxter’s response was: “Really?”

Smith said his “couple of thousand users” in Australia have taken a number of years to acquire and pay $3.95 a week.

“I find it an exceptionally flippant way to describe your user base,” Baxter said, adding the user acquisition was “anaemic”.

Allis said: “What you’re saying is ridiculous. I’m out.”

Simson was just as dumbfounded by the deal. She said it wasn’t clear what the value proposition was and that “I couldn’t trust you.”

McGrath was also out. “I’ve seen some worse ideas but not many,” he said.

The next idea to be pitched came from Queenslander Adam Riley who asked for $20,000 for 20% of the company which manufactures a personal electric skateboards.

It can travel at up to 35 km/hr, is completely portable and would be sold for over $1500 each. It costs Riley about $500 to manufacture each of them.

Riley said he wanted to expand the business using cashflow, an answer which Baxter said was an “excellent” one.

It was the one idea which had four of the five judges circling.

Banks offered up his contacts and experience in the US market. His terms were $20,000 for 25% equity plus an $80,000 loan.

Simson’s offer was more simple. She put up $20,000 for 15% of the company.

McGrath offered $20,000 for 10% plus a $50,000 loan and requested a $20 royalty be paid to him on the first $1,000 boards.

Allis also offered $20,000 for 25% but wanted Banks involved as well.

Negotiations went back and forth and Riley finally settled on a deal with Allis and Banks, giving away 35% of his company for $40,000.

The final idea pitched was Hamdog.

It was a novelty idea which crossed a hamburger with a hotdog. The inventor, Mark Murray was after $1 for a 25% share of all the rights and revenue the hybrid burger generates.

It’s a burger which has been patented in the US and registered in Australia, mind you.

“It’s a party in your mouth,” Murray said.

But this pitch wasn’t about money – it was about attracting an investor with contacts – one that could open doors.

“My vision is to take the vision of the Hamdog to market,” Murray said.

Baxter said the culinary revolution wasn’t worth his time or reputation.

Simson said: “I don’t see it as a business and I don’t see it as something that you need me for so for that basis I’m out.”

While McGrath said: “It’s a crazy idea, good luck with it. I’m out.”

But Banks related to the idea. He explained just a few weeks back his five-year-old daughter couldn’t decide whether she wanted a burger or a hotdog while visiting Disney Land.

“I don’t think this is a business proposition. I think this is a punt and I’m interested in having a punt with you,” Banks said.

“I’m prepared to give you $2 for 50%.

“It might have enough novelty factor. I’ll work with you.”

And with that the deal was done.

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