Pair Eyewear
Pair Eyewear is a company from New York, NY, that wants to help kids love their glasses. Using a mix-and-match system that reminds your Stats Shark of Baubles + Soles from just this season, Pair Eyewear has created a line of glasses that can have the "top" swapped out with compatible pieces that feature new designs and different colors. Unlike Baubles + Soles, these pieces don't attach mechanically but magnetically.
The entrepreneurs, a man and woman pair of classmates from Stanford, say that they were inspired by the male entrepreneur's experience of wearing glasses as a child. They also claim to have started a "revolution" in the last year, although what the goal or the dogma of said revolution is remains unknown. However, the kids that were part of the demonstration did attest to the fact that the glasses are both comfortable and light.
One pair of Pair Eyewear glasses costs $95 for the complete package of frames and lenses with anti-glare and anti-scratch coatings. Each new "top" for the glasses then retails for $24.95 while costing only $6 per item to manufacture. The entrepreneurs claim that Pair Eyewear has 70% margins on both the glasses and add-ons. All of their business is done direct to consumer online though their own website.
Kevin cites the fact that there is one company that does 80% of all eyeglasses in the world[1] and wants to know what's stopping them from knocking off the Pair Eyewear concept. In essence, he wants to know if Pair Eyewear can achieve scale before being ripped off.
The entrepreneurs don't directly answer the question but claim that they have bootstrapped the business so far and have succeeded in raising capital when they need it, including $150,000 from friends and family. They then beta tested the concept with seventy-five families to determine best how to launch the brand. Since then, they've raised $1,000,000 on a $4,000,000 valuation from a couple of venture firms.
In the last eight months, they have made $100,000 in sales with $15,000 being made just in the previous month. So far they have done $50,000 in marketing.
Unfortunately, in this, it's revealed that Pair Eyewear only has $150,000 left in the bank. The sharks, naturally, want to know what happened to the rest of the money. The entrepreneurs explain that they spent a third of their money of product development, a third on operations expenses, and the last third on legal costs, FDA compliance costs, and patent acquisition.
In addition to the $150,000 they have in the bank, they have another $150,000 in inventory that they have built up so that when they "perfect" their marketing message, they then have enough to sell through.
Making A Deal
Robert is the first shark to exit the deal, saying that he just doesn't see the concept as being a stand-alone company. Kevin quickly follows him, stating that he's underwhelmed by the sales numbers, doesn't like being in a space where one competitor has 80% of the market, and that he also doesn't believe any patent will protect the concept.
Mark Cuban states that he thinks the problem they have is cash. And because they're burning through it at the rate they have been, they must already be fundraising the next round. The entrepreneurs admit that they are. That they are trying to raise another $3,000,000 at a $9,000,000 valuation and that they currently have commitments for $1,500,000. When questioned about the potential for devaluation for shareholders, the entrepreneurs respond that all potential investors are aware that they were going into the tank and are prepared to accept any devaluation in return for having a shark onboard. But that doesn't keep Mark in the deal and he drops out.
Left to pitch to are guest shark Katrina Lake and Lori Greiner. Katrina says that she and Lori have compatible platforms. Lori states that she thinks the deal is risky, given that Pair Eyewear has already taken on so much investment but doesn't have a lot to show for it in sales. Still, the two decide to team up and offer $400,000 in exchange for 10% equity and a 2% per unit royalty until earning back $400,000, at which point it will stop.
Kevin, of course, loves this type of deal and asks whether the entrepreneurs wish he'd never "taught" Lori about royalties.
The entrepreneurs respond that they're not terribly interested in a royalty deal because it will tie up capital.[2] They try to counter with their original deal of 10% equity but adding 2% more in advisory shares, a move that would not effect the value of their company but offer them a way to give the Lori and Katrina a little bit more for their money.
Katrina practically laughs and says no to the idea of advisory shares. Both sharks appear ready to walk away when one of the entrepreneurs counters with a $1 per unit royalty. Lori counters back with a $1.5 royalty and a deal is struck!
The interesting thing about this deal is that, from a cap-table perspective, the entrepreneurs maintained exactly the value they walked in with as the sharks got no more equity than had originally been offered. This might be good for additional fundraising rounds. However, Pair Eyewear now has $400,000 in liabilities which must be paid before any money from sales can be realized in profit or returned to investors.
Whether this deal is a "good" one, depends entirely on what the entrepreneur's priorities are. If it's to grow the company and sell, sell, sell, this deal may in fact be the best possible one that could be made. If it's to grow it to some size and then sell for a profit, this deal may have defeated those plans.
Notes
- ↑ The name of the company is the Luxottica Group S.p.A. source
- ↑ Your Stats Shark thinks that the entrepreneurs in this deal weren't so worried about tying up capital so much as they were worried about having strings attached to any exit that might come along. If their own numbers are to be believed, adding $2 to the $6 to manufacture the extra "tops" doesn't subtract a lot from their margins when these are then sold at $24.95. But, what it does do is discourage a potential buyer from acquiring the company because the royalty contract would remain in place or have to be bought out separately.