Fur is a company that makes a line of products for... pubic hair grooming. Yeah, seriously. Much like Beardbrand but for the hair between your legs. Fur has taken the same idea and created a product line of shampoos, conditioners, and perfumes specifically for the hair in the public region in order to "destroy the taboo" around public hair.
During the demo of the hair oil, Lori comes out and compliments the product bottle. The entrepreneurs behind Fur says that the oil was endorsed organically by actress Emma Watson and that they sold through a year's worth of product in just three weeks. In addition to the oil, they also have a stubble cream and an "ingrown concentrate" (a product, one presumes, helps prevent ingrown hairs).
Daymond asks a basic question, why someone would want to oil their public hair, and an entrepreneur responds that if people were to treat their public hair like their regular hair, they wouldn't experience in-grown hairs.
Based on the $20,000,000 valuation that the entrepreneurs assigned their company, Mr. Wonderful wants to know what their sales have been in order to justify such a thing. An entrepreneur responds that one of their had worked for L'Oreal while the other had been a management consultant for ten years and had been working on Fur since 2014. Together, the two entrepreneurs had invested $500,000 of their own money and that Fur had no other investors or debt. In addition, Fur is on track to do $5,000,000 in sales by the end of year, having booked $3,500,000 in the year by the time the deal was filmed and, that, without any holiday sales. Kevin, suffice it to say, began to get giddy.
In terms of product costs, The Fur oil costs $5.35 per unit to manufacture and retails for $46 per bottle. Across all of their product lines, they average $7.63 per item to manufacture and sell for an average of $37 per item.
Making A Deal
Mark is the first to jump ship, congratulating the entrepreneurs on their business but stating that it's not for him.
When Kevin pressed the entrepreneurs about their valuation, they respond by saying that it's not uncommon in the beauty industry for companies to be valued at between four to six times their revenue. Kevin doesn't seem impressed.
Daymond asks about the entrepreneur's willingness to license their products but the entrepreneurs close off that avenue right away. Stating that, because it's a mission based brand, they feel that it's important that Fur maintains complete control of the product and the message. This, apparently, doesn't put Daymond off because he ends up offering $500,000 for 15% equity in the business.
Kevin is still happy about the margins. And because they have the margins, he offers them a deal with a royalty: $500,000 in investment with a $1 per unit royalty until it's earned back $1,000,000. That plus 2.5% equity because... well... he's Mr. Wonderful. Guest shark Maria Sharapova objects, laughing out loud that Kevin O'Leary may not be the best spokesman for the Fur brand.
Lori presses the entrepreneurs on the mission they mentioned to Daymond. The entrepreneurs state that it's their goal to get people to be more positive about their bodies. To this, Lori offers $500,000 at 12% but says she'll also put $50,000 toward a charity that benefits body image.
Maria Sharapova drops out because 2.5% isn't enough equity for her to be interested. The entrepreneurs use this opportunity to counter all of the deals that have been offered to them thus far at just 5% of the business rather than the various levels that have been proposed but no one bites. The closest is Daymond John, who states that he'd be willing to go down to 10%. Lori, meanwhile, states that she's already made her best offer. Daymond begins to get peeved, stating that he didn't think that the entrepreneurs were seeing or understanding his value and then takes his deal off the table.
The entrepreneurs respond that they would go up to 5%, that they had planned to in order to get a shark but seem stuck as far as what to do since no one is getting even close to that. Finally, Lori agrees to go down to 8% equity and the entrepreneurs agree.
This deal is an interesting example that demonstrates that people can perceive the value of their thing at any level they want to but that the actual value is what the market will bear. In this case, the entrepreneur came in with a sky-high valuation of $20,000,000! But, after hearing out the sharks, it turns out that the more realistic valuation is around $6,500,000, or what Lori ended up valuing them at. In fact, an argument can be made that the true value of the company could be even lower as Daymond would have valued the company at just $5,000,000 and who knows what Kevin would have put the value at though it can be almost guaranteed that it would have been lower than Lori's value and maybe lower than even Daymond's.
$13,750,000 is a serious bite off the value of any company. That is 68% of the perceived value gone in the course of a pitch meeting. But, perhaps the question is, was it ever truly worth $20,000,000 or was that always just a made up number?