Leverage(debt to equity ratio) = liabilities/ equity In the event of bankruptcy, bond holders(creditors) get repaid first, followed by preferred share holders, so it is natural for an equity investor to be more cautious. If the business has thus far been financed through much more debt (bonds) than equity, that can raise a red flag, as there's higher risk of the company defaulting on its loan repayments (bond coupon and principal). Net profit margin = Net income / sales revenue c) Leverage The sharks made the business owner divulge that he had only made $50K net profit, with the impressive $3.3 million sales revenue, i.e just 1.5% net profit margin, not a very profitable business. In the "Wisp" (smart broom) episode, the sharks remarked it was a great product, but a bad business, when they learnt that of the $3.3million in sales, $2.1million would go towards recouping his own investment, and the company had taken 6 years to break even(revenues to match costs). Now sales revenue in isolation may be impressive, but knowing how much it 'cost' to get till here is as important. The sharks scrutinise whether the income from product/service sales is increasing every year, and in particular, whether the sales in the current year thus far are indicative of achieving the targeted increase by year end. Sometimes this happens when the industry is not within their known domain, but often this happens when the sharks sniff out a deal breaker, such as one of the below : a) Sales Revenue trend This is when a shark (investor- the one with all the moolah) chooses to NOT invest in the proposed business. the company's estimated worth is $3.5 million.īased on the following factors, the sharks may decide that the company is over valued or, simply wont be profitable for them. If this is the first time ever that the company is raising funds,e.g $350K for 10% equity, then this puts them at 350K X 100/10 = $3.5 million valuation, i.e. Here, business owners come in with a proposal asking the sharks give them cash/credit in exchange for a small percentage (equity share) of their company. I'm seeking $XXX for Y% stake in my company!!! With no sharks left willing to make an offer, the entrepreneur left the tank without a deal.If you can't get enough of binge watching ABC's Shark Tank series, then some of these catch phrases should sound very familiar to you: 1. The entrepreneur accepted but, rather than accepting congratulations from Kevin, he continued speaking with Lori about bringing her in on the deal and Kevin rescinded his offer. Wonderfull offered $500,000 for 50% of the business if the entrepreneur could make it work with his other investors. The entrepreneur admitted that Wisp Industries also carries another $250,000 of structured debt.īecause of the financial condition of the business most of the sharks dropped out. Kevin estimated that this put the business $2,100,000 in debt. The entrepreneur claims that the business, despite this capital, only has $50,000 left in the bank. In the six years since launching the business, the company has raised $2,500,000 from twenty-two investors. According to the entrepreneur, this has happened several times and is looking for a shark to help him manage the boom and bust cycles. However, the product cooled off before the inventory could sell through. This is because in the previous year, the product went viral and brought in 110 million views and they company did not have enough inventory on hand to respond. The business currently has $300,000 of inventory on hand. In the company's six year lifetime, it has grossed $3,300,000 in total sales. However, they lost $600,000 after that revenue, primarily assigning the cause to revenue sharing appearances on some kind of sales show where they lost money even after the sales. In the previous year, Wisp Industries made $1,430,000 in gross sales. Naturally, all of this is covered by a series of design and utility patents.Įach Wisp broom and dustpan combination costs $17 per unit to manufacture and retails for $29.95. And, when those bristles capture cobwebs or other hard to remove detritus, the bristles can be cleaned with a swipe against the side of the dustpan. Rather than long bristles, the Wisp product features short bristles to provide a "seal" against the floor and the dustpan can be easily maneuvered with a person's foot so that a person need not bend over much less perch on ones knees like a fucking servant. And to that end, this San Marcos, CA, based company has re-invented the boom to capture even the finest grains of dirt and the dustpan to be manageable without having to bend over. Do you think traditional brooms and dustpans aren't getting the job done? The people at Wisp Industries sure don't think so.
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