Prank-o
When the deal began, the company was presented as Ryanarik from St. Paul-Minapolis, MN, the makers of a plastic dish that could magnetically connect to a hat worn by a parent so kids could eat when sitting on their parent's shoulders. The original ask was $75,000 for 15% equity in the business. Claiming not to be one shot inventors though, they presented other products that they'd developed including Pet Sweep, a pair of slippers that would pick up pet hair while walking around the house, Bathe & Brew, a coffee maker and soap dispenser for the shower, Crib Dribble, a child feeder mounted inside a crib not unlike one would put water for a gerbal, as well as several others.
It turns out, however, that the whole thing was a gag. In fact, the company was prank-o, and the real ask was $640,000 for 8% equity at a value of $8,000,000 that few of the sharks found to be funny. Also, they hadn't made any of the products above. Instead, they just made the boxes that people could purchase to wrap their own gifts in.
One entrepreneur was a co-founder of The Onion and had seen the gag gift box available through The Onion online store sell well and he contacted the designer (and other entrepreneur) about starting a company based around those types of gift boxes. The two started prank-o five years before but claim to only work about three weeks each year.
The boxes are manufactured for $0.66 a piece and sold for $8 in retail stores as well as direct to customers.
In the five year lifetime of the business, the entrepreneurs claim to have made $10,000,000 in sales. They project $2,800,000 by the end of the year in which this episode was filmed.
Unfortunately, the previous year, the entrepreneurs attempted to branch out and create more types of gag products but they were commercial failures and the company racked up $1,000,000 in debt. Additionally, the entrepreneurs pulled an additional $3,000,000 from their lines of credit to fund orders for the current season and they reportedly have no money in the bank.
This deal aired on Episode 10.07.
Making A Deal
The sharks were not happy about the amount of debt that the business was in. However, Mark came out an offered them a straight up $640,000 for 25% of the business. Kevin returned with his own offer of $640,000 for a $0.38 per unit perpetual royalty (as is his want). Kevin also claimed that through his Something Wonderful platform, he could help smoothe out the seasonality of the business.
Mark claimed that the real secret was to get the product onto e-commerce platforms as a wrapping option and said Kevin's offer wasn't worth it because the royalty would last forever. The entrepreneurs attempted to get Mark to lower his equity ask but he refused, citing the amount of work that was required, and the entrepreneurs accepted, bringing Mark Cuban on board as an investor.
Analysis
Your humble Stats Shark hated this deal as soon as it was revealed that the original concept was a gag in and of itself. It meant going back and changing all the notes in the spreadsheet he keeps and it wasn't very funny. So he understood the sharks frustration at the suddent change in value.
However, when Mark brought up the idea of getting prank-o's product onto e-commerce platforms, your Stat Shark's ears pricked up. What a brilliant idea! Gag gift boxes are one thing. Maybe it's the kind of thing you might buy if at a trinket store and saw them by the register to do as a one off for your goofy friend. You're already buying their present there and will be seeing them later in the month, so wrapping it and giving it to them is no big deal.
But what if you're sending the gift across the country? Are you going to seek out prank-o's website, order gag gift boxes, order the presents from Amazon, have them all shipped to your home or office, wrap them, then head to the post office with them and have them mailed? The Magic 8-Ball in the Stats For Sharks' office here says "Unlikely."
If the gift box were available through Amazon as a wrapping option though, that could be amazing. Yes, it clearly would cost more than traditional wrapping that is available but it's a one-click option. A person could very well send all their gifts with these boxes one year. And they don't have to remember who made them and to get them in the future and go through the full hassle described above. Each time they go online to buy a gift for someone, it's there as an option and prank-o sells yet another box.
Additionally, for prank-o, it's a much better deal. They need not ever touch a physical box again. Instead of getting all their orders to their office or fulfillment warehouse to then be shipped out again, they could ship directly from their printer to the e-commerce sites that will use it as a wrapping option since it will be in bulk orders and can increase their margins by actually reducing their shipping overhead.
All in all, the Stats Shark believes that if Mark's plans bear fruit, the valuation hit that they took in making a deal with him will be more than worth it in the long run. This is a really good deal for the entrepreneurs.