Innovation Pet
DEAL
EPISODE SUMMARY
🕓 Air Date: March 11, 2016
Asking For:
$250,000 for 5%%
Investor:
Daymond John
Deal:
$250,000 for 12.5% equity + 25% of online sales
PRODUCT SUMMARY
Innovation Pet manufactures a variety of pet products, including dog toys, dog houses, cat play systems, and unique chicken coops, with a focus on innovation for pet owners.
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Background Story
Innovation Pet is the brainchild of Victoria Coopman and Tim Taft, who are passionate about creating innovative products for pets. While the location of the company is not explicitly mentioned in the transcript, it’s clear that Victoria and Tim have a deep understanding of the needs of pet owners. The duo recognized the importance of enhancing the lives of pets and, by extension, their owners.
The founders are not merely entrepreneurs; they are pet enthusiasts who understand the unique needs and preferences of different animals. Their commitment to innovation is evident in the development of prototypes like the Magic Carpet, designed to entertain and engage cats actively.
The Product
Innovation Pet offers a diverse range of products catering to various pets, including dogs, cats, and chickens. One standout product is the Kitty Connection, a modular cat play system featuring scratching components made of corrugate and carpet. The unique feature of an internal pulley system adds an element of motion to keep cats entertained. The system allows for customization, ensuring that pet owners can constantly create new toys and activities for their feline companions.
The Whimsical Dog House, another flagship product, addresses the lack of fashion and trends in traditional dog houses. It stands out with its cute design, providing a stylish and comfortable space for dogs. Additionally, the founders are working on innovative products like the Magic Carpet, a prototype designed for cats with hanging toys and a remote-control feature for added interaction.
One of the highlights of Innovation Pet’s offerings is the chicken coop category. The founders identified a gap in the market where existing coops had limited functionality. Their solution includes a patent-pending, free-range door, allowing chickens easy access while maintaining safety from predators. The coops are not only functional but also affordable, with a retail price of around $599.
How It Went
The company’s position before Shark Tank
Innovation Pet has made a significant impact in the pet industry, achieving sales of $2.5 million in the current year. The company’s product range, including the popular Kitty Connection and innovative chicken coops, has contributed to its success. The customer base primarily consists of pet specialty stores, with a presence in major retailers like PetCo and PetSmart. The company’s gross margins currently stand at 27%, with variations depending on the product category. While some smaller items boast higher margins, larger items like chicken coops contribute to a lower overall average.
The founders acknowledge the challenge but emphasize that these products, while having lower margins, require minimal logistical costs, making them a valuable addition to the product lineup. Innovation Pet has successfully navigated the retail landscape, with a presence in both pet specialty stores and larger retail chains. The strategic focus on the Kitty Connection has secured placements in PetCo, showcasing the product’s popularity among consumers.
The founders highlight their online presence, acknowledging the importance of e-commerce. However, the online sales component currently forms a smaller part of the overall business. The company’s partnerships with big-box retailers, such as PetCo, contribute significantly to its revenue stream. As for the company’s valuation, Innovation Pet places a $5 million value on the business. This valuation is supported by the anticipated $2.5 million in sales for the current year. While the valuation is deemed high by some sharks, the founders express confidence in their trajectory and growth potential.
The Negotiations:
The negotiation process sees three sharks opting out due to concerns over the company’s small equity offering of 5%. Mark Cuban expresses admiration for the company’s innovation but opts out, citing a lack of fit within his investment portfolio. Daymond John sees potential in Innovation Pet but is critical of the 5% equity stake. He proposes a deal where he provides the requested $250,000 for a 12.5% equity stake and an additional 25% of online sales. Daymond emphasizes his ability to build the online component for the company, viewing it as newfound money.
Kevin O’Leary takes a different approach, suggesting a venture debt deal. He offers $250,000 in exchange for a 6% royalty on sales until he recoups $500,000, with an initial 5% equity stake. The idea is to incentivize the founders to repay the investment quickly. In the end, Victoria and Tim choose Daymond John’s offer. They appreciate his strategic fit for the company, especially considering his expertise and connections in the industry.
The deal includes $250,000 for 12.5% equity and 25% of online sales, with Daymond committed to building the online presence and assisting with PO financing. The founders expressed excitement about the partnership, anticipating significant growth in their online business and expanded reach for their innovative pet products.
