Goumi
Goumi is a company that has a fashionable solution to babies hurting and scratching themselves while also keeping them warm. Baby fingernails, for those not in know, are sharp and parents often put a pair of mittens on their little monkeys to help protect against face scratches. But they also put booties on to help keep them warm. Naturally, because they're squirmy little creatures, both these things get lost. So Goumi has created a new line of mittens and boots that stay on with a closure.[1] Goumi has also great a "gown" for babies that go from just a clothing item to essentially a sleep sack with a quick conversion.
The packaging for these Goumi products is sharp, so sayeth both Daymond and Mark. In fact, Daymond mentions that he has a three year-old and had long wondered where the scratches on her face came from and had never considered the little finger and toe nails.
The whole bundle of items sells at retail for $102. It costs $14 to manufacture and has a landed cost in the neighbourhood of $17 or $18. A pair of booties costs just $2.20 to manufacture and sells for $18 at retail while mittens are $4.50 to make and retail for $24.
Goumi has been in business for eight years and will, in the year in which this deal was filmed, sell a million units. Over the company's lifetime, it has made $5,200,000 in sales and projects $2,500,000 in sales in the current year alone, 15% of which should be profit. The entrepreneurs project earning $5,000,000 in the next year. 15-20% of sales are direct to consumer.
The business raised its first round of investment in 2018 at a post-money value of $5,000,000 (compared to the $12,500,000 value the entrepreneurs have placed on the company coming into the tank).
The Goumi pitch was presented by two entrepreneurs, one who had worked for both Nike and Addidas while the other sold zippers within the apparel industry. As of the pitch, both were living in China and had met through a Chinese school.
Making A Deal
As if it weren't inevitable, Mark, Daymond, and of course Kevin all take issue with the over $12,000,000 valuation. Lori takes issue with another price, the price of the clothes, asking outloud whther the price point might not be a little too high. But the entrepreneur responds that the price was tested with online sales.
Mark, then, points out that there's no way to educate consumers in-store about the fingernail scratch issue. He states that he's unhappy with the size of the in-store display and the general lack of marketing. But what he's really unhappy about is that they had the nerve to come into the tank asking for $1,000,000 while valuing themselves at $12,000,000. Daymond then pushes the entrepreneurs to explain themselves and the entrepreneurs respond that they're valued at $12,000,000 because that's what they can raise.[2] Additionally, they've managed to get their customer acquisition cost down from $16 per new customer to just $8.
Barbara cites Grace & Lace as a company that has been in business for about the same amount of time as Goumi and says that they have made $15,000,000 in sales. She says that 70% of their customers return to make an additional purchase where as the customers of the baby market are always aging out of the baby market and so sellers always have to find new customers and that is part of the reason why it's so expensive. And, of course, for all those reasons, she is out.
Lori compliments the quality but she says she always looks for affordable prices for consumers first and the model Goumi has chosen to pursue isn't right for her so she's out.
Daymond still isn't over Goumi's "crazy" valuation but, still, he makes an offer of $1,000,000 in cash for 30% equity which would bring the value down to just $3,300,000.
Then Kevin weighs in. He struts his stuff, not without reason, and says he "owns" the space that they're in. He cites the Something Wonderful platform of companies including Honeyfund, Lovepop, and Wicked Good Cupcakes as being businesses that can funnel customers to one another. From all this experience, he says that he thinks they need money for inventory so he offers a debt deal instead in form form of a revolving line of credit worth $1,000,000 with an interest rate of 9-10% plus 10% in equity since they were willing to go 8% anyway.
The entrepreneurs are interested because they want to preserve their value but, like a lot of businesses in the tank, aren't sure about taking on debt. Instead, they counter Daymond to 15% equity, hoping he might bring down his offer a bit. But Daymond says they came in with too big of a valuation. They then turn to Kevin and say that they already have a $250,000 line of credit that they haven't used. They also say that they have good payment terms with their manufacturer.
But Kevin asks them to make a decision, leaving his offer unchanged. And they select Mr. Wonderful, likely because it leaves their value more or less unchanged with just a $1,250,000 bite while bringing on a partner who, if nothing else, can help them market the product line to western consumers.
Notes
- ↑ If you feel like you've heard this one before it's because Squid Socks from earlier in the same season also had a deal for keeping clothing items from falling off of babies.
- ↑ This is, in fact, how valuations are determined in the private equity market. Uber and WeWork didn't have some magical formulas that valued them in the billions, investors demonstrated that they agreed with that value by investing at that value and so they became worth it. It's kind of like paper money, it has value because we all believe it has value and so it has value.