Cabinet Health – Sustainable Healthcare
DEAL
EPISODE SUMMARY
🕓 Air Date: January 13, 2023
Asking For:
$500,000 for 2,50%
Investor:
Tony Xu, Kevin O'Leary (50/50)
Deal:
$500,000 for 7% + 2% royalty
PRODUCT SUMMARY
Cabinet Health is a sustainable healthcare company that produces compostable and refillable over-the-counter medicine and supplement packaging to reduce plastic waste.
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Background Story
Cabinet Health is a sustainable healthcare company founded by Achal and Russ, who are on a mission to tackle the environmental impact of single-use plastic medicine bottles. Achal, a third-generation healthcare entrepreneur, comes from a background deeply rooted in the pharmaceutical industry, with his grandfather being one of the pioneers of acetaminophen manufacturing.
His early exposure to the pharmaceutical world instilled a passion for the industry. On the other hand, Russ has a strong sustainability background, having served in the U.S. Army and worked in environmental policy development at both state and federal levels. His private-sector experience includes work at Deloitte Consulting, where he was involved in scaling social businesses. Together, they combined their expertise to create Cabinet Health, focusing on delivering sustainable healthcare solutions.
The Product
Cabinet Health’s innovative solution revolves around a line of sustainable, compostable, and refillable over-the-counter medicine bottles and supplements. Customers purchase a starter set that includes a forever bottle.
The glass bottle is designed to last indefinitely and is the foundation of the Cabinet Health system. This initial purchase is priced at around $10 to $20, providing an attractive one-time investment for consumers.
The company offers compostable refill pouches that meet FDA standards. These pouches are made from backyard compostable materials and are designed to reduce waste. The products feature child-resistant caps for safety.
Cabinet Health emphasizes affordability and sustainability. They promise customers that their products are priced below brand-name equivalents and provide more pills, resulting in savings of approximately 20% to 30% on pricing for customers. The refill pouches are the primary source of these savings.
How It Went
The company’s position before Shark Tank
Cabinet Health has shown impressive growth and success. They have achieved several key milestones. With a strong value proposition, they have garnered a customer base of 700,000 individuals. In the current year, they are projected to achieve $14 million in sales, with a net profit of negative 20% due to significant investments in research and development. However, they anticipate reaching break-even by Q3 of the following year.
The company has raised $13 million from mission-focused investors who share their vision of reducing single-use plastic waste in the healthcare industry. Their latest valuation stands at $81 million post-money. Cabinet Health is strongly focused on sustainability, offering a product that aligns with the growing consumer interest in eco-friendly and environmentally responsible alternatives.
They have developed a robust supply chain and are investing heavily in research and development to maintain product safety and efficacy while eliminating single-use plastic packaging. Despite a temporarily negative net profit, their strong sales and market traction suggest significant growth potential.
The Negotiations:
In the Shark Tank negotiation, Cabinet Health was seeking a $500,000 investment for a 2.5% equity stake in the company. The founders received two offers from the Sharks. Kevin offered $500,000 for a 12.5% equity stake, valuing the company at $4 million. His offer was based on the company’s current valuation and the potential for growth in the sustainability market.
Tony offered $500,000 for a 10% equity stake. He emphasized his experience in operational excellence and scaling, which he believed would be invaluable for the company. Both Kevin and Tony showed genuine interest in Cabinet Health’s mission and product. The founders, however, were not ready to accept any offer without exploring creative deal structures. They proposed a unique deal that allowed the Sharks to earn back their initial investments through a royalty arrangement.
The final deal structure, which Cabinet Health proposed and the Sharks accepted, involved each Shark investing $500,000 for a 3.5% equity stake, coupled with a royalty arrangement. The royalty would be up to 2% of top-line revenue, allowing the Sharks to earn their initial investments back. Once the initial investments were recouped, the equity stake increased. This deal allowed both Kevin and Tony to be part of Cabinet Health’s sustainability journey, aligning their interests with the company’s mission.
