The Kombucha Shop
The Kombucha Shop is a business from Madison, WI, that wants to help people make their own kombucha at home. To those who have never seen it before, making kombucha can look frightening as the scoby, the fungus that is fermented to make the drink, can look disgusting and intimidating. The Kombucha Shop wants to take the fear and intimidation out of the process by selling easy to use kombucha production kits.
The entrepreneur behind The Kombucha shops sees retail kombucha products as too expensive when the drink can simply be made at home. She demonstrated the results of her product to the sharks, none of whom were impressed. However, as the entrepreneur pointed out, kombucha, like coffee or beer, is an acquired taste and those who drink it are crazy about it.
The entrepreneur went out of her way to say that she was making no health claims about what drinking kombucha might do for anyone, an act that Mark applauded.
The Kombucha Store offers two described products, the "small" kit and the "deluxe" kit. The kits cost $11 and $23 per unit to manufacture and retail for $45 and $75 each.
The Kombucha Store products are sold via the company's website, on Amazon, and within a handful of retail locations. The business was started with $800 of the entrepreneur's own money and has seen gross sales of $3,200,000 over the course of its lifetime. The entrepreneur has already grossed $1,700,000 in the current year alone, making $500,000 in profit after having paid herself.
The entrepreneur claims that her customer acquisition cost is zero since she has never spent any money on marketing or advertisements.
The Kombucha Store is looking for investment not because the money is needed to keep or grow the business but because the entrepreneur is looking for a strategic partner to help her discover what she doesn't know about entering the retail space. Specifically, she wants a shark to help get her into Whole Foods before competitors flood the market with similar products.
This deal aired on Episode 10.05.
Making A Deal
Many of the sharks bowed out, not because they didn't like the business but because they only invested in products that they knew and enjoyed and almost none of them liked the actual kombucha itself. Kevin worried about the plan to try to get the product into retail stores as he didn't see enough of a margin within the costs to make it viable.
Guest shark Sara Blakely worried aloud about taking equity in a new business in exchange for just making a phone call but the entrepreneur countered that that was exactly what she was looking for and was worth it for her.
Barbara cut through all the rest and complimented the entrepreneur on her stellar design sense and her amazing business. She asked Sara to join her in a deal that would give the entrepreneur $200,000 in direct capital and a $150,000 line of credit in exchange for 10% equity presumably split between them.
Because of the way the Stats Shark calculates values and because lines of credit to fund inventory and the like are commonly added as sweeteners on top of equity deals, this actually represented a bite of $1,500,000 from the original value of $3,500,000 to $2,000,000 from what the entrepreneur walked in with, this despite the fact that the equity and the line of credit total to exactly what the entrepreneur had originally asked for.
Still, the entrepreneur saw this as a deal worth having and accepted the offer.