Shark Tank: The Art of Pitching Successfully to Raise Funding (2)

March 16th, 2023 | Strategic Vision Conference (SVC)

 

A 10-part blog series which dissects and analyzes; the deal, the investors and the entrepreneur.

One of the toughest and most exhilarating back-to-back negotiations

 

Entrepreneurs: Andrea Meggiato and Michelle Jimenez 

• Confidence level: High
• Likeability: Yes! Liked by all the sharks.
• $2.5 million valuation: seeking $125k in exchange for 5% of their company

Pizza Cupcake’s pitch was baked and served to satisfy our appetite, as well as our gastronomic desires.  Andrea’s strong opening with “the pizza cupcake is the next level of pizza, that belongs anywhere and everywhere” is impressive. He is spot on with that.  The vegetarians are in on it too, with veggie pizza.  Although, theirs is made from veggie ingredients and tofu substituted for cheese. Michelle saying “the frozen pizza category has gone a bit stale” is spot on.  Andrea asked, who doesn’t love pizza;  yes, people love pizza all over the world.  Some like it plain; others like it with broccoli, chicken, pepperoni or pineapple.  Pizza is a snack or fast food on the go, depending on how and what it’s served with; it could be lunch or dinner.  Anyone from any part of the world could have reinvented this pizza cupcake wheel. However, the fact that Andrea is Italian, who comes from Italy and was a chef at Soho House a top restaurant in London, adds a certain flavor to the mix.  That is the special something the French refer to as je ne sais quoi.  Andrea’s love for his product is undeniable; it is evidenced by his description in quotes “a fine gourmet snack that is easy to serve and made with high quality ingredients.” “Our trade secret dough recipe delivers a fluffy texture that’s unlike any pizza you’ve ever had.”

 

Opps! The dancing mascot mistakenly knocked over a few frozen pizzas.  Mentioning this is not taking a dig at the Pizza Cupcake, but it is highlighted to underscore the importance of reducing your stress level by eliminating extras which could encounter mishaps.  Investors will be lenient and will overlook certain things, because they are also human.  More importantly, this is your chance to secure capital which is the lifeblood to either kickstart your company, or grow it to the next level.  In short,  do not allow the stress to consume you.  For Andrea and Michelle, it turned out fine because it was an icebreaker which got the sharks interested.

Comments from the Sharks

• Daymond:  “There’s gotta be a lot of butter in this.”   ” This is delicioussss.”
• Mark:  Really good, really good.    
• Lori:  It’s amazingly delicious!   “For Kevin to be silent and just be eating is amazing.” 
• Robert: How did you come up with this magic?   Why is it so good?  “It tastes like you made it this morning.” Andrea responded “that’s a frozen product.   “Stop talking, let’s eat.”
• 12 pack = $24.99 + $9.99 for shipping = $34.98 
• Mark: Basically $3 per pizza cupcake.

Andrea clarifies; one cupcake is 0.95 cents looking to go down to 0.48 cents with the recipe we have.

 

 

As you listen to Andrea; Pizza Cupcake’s pitch will make you hungry, or at least salivate for a taste. He explains “it’s not your regular pizza dough.”  “It’s a hybrid.”  “No, there is no butter, only olive oil.”  “It’s a hybrid between a brioche and a sourdough; so you get the fluffiness of a brioche and the crunchy and flakiness of the sourdough.”

Business Model Operations and The Numbers

• As of 2021 Pizza Cupcake’s main channel of distribution for sales: catering, Smorgasburg and stadiums.
• In 2022 by the time Pizza Cupcake appeared on Shark Tank, they were selling Direct to Consumer (DTC).
•  As of 2022; sometime before Pizza Cupcake pitched on Shark Tank; their projection was $800,000 in sales.
• Pizza Cupcake’s 2021 revenue was $344,000 the previous year before Shark Tank appearance.
• In the same year they appeared on Shark Tank; year to date, they had already made $77,000.

Michelle said, “so prior to COVID, “we were really a restaurant business” and so because of the seasonality of our business we knew that we had to launch e-commerce.”  Mr. Wonderful affirms direct-to-customer frozen products. This business model change was the best thing they did, and its result will propel them to stratospheric heights.  As a daily consumable; as long as it tastes good, it’s healthy and it serves multiple purposes, that’s all they need to spread their pastry tentacles throughout the U.S. and abroad.

Target Audience for Exospheric Growth 

1. Supermarkets
2. Schools
3. Hotels and motels
4. Airline and airports
5. Sports arenas such as NFL, NBA, MLB and NHL. They already have the NY Mets.  Working with at least one or two teams from each league increases demand by multiple folds a year.

Start Small but Have a Vision to Grow Big

There’s nothing wrong with starting small.  Relatively speaking, everyone does.  Engaging in a test run, or just figuring things out by spending as little as possible in order to gather the intel required to know if you are going in the right direction or not is both practical and de-risking. In business it’s called proof of concept. Andrea and Michelle were able to do this by baking for one of their best friend’s events, of which the group consisted of Italians. As mentioned, he said they loved it. The response from the picky crowd provided the boost of confidence to take the concept to the next step.

Partnering with Citi Field, the home of The New York Mets, is a huge stamp of approval. It helps with sales, branding and other partnerships. As the saying goes “success begets success.”  Although the NY Mets approached Pizza Cupcake, the likelihood is, the genesis of that connection was human related; meaning an interaction in the past.  It is unlikely it was a cold email from The NY Mets. Whatever you are doing, even if it is a technology business, it’s always good to meet people in the real world.  Past experiences are almost never a complete waste of time. It’s only when they yield fruit in the future that it makes sense.  Michelle’s past experience as an event producer and someone who worked with social media influencers should definitely come in handy.  Pizza Cupcake has achieved great success in a very short space of time. That is extraordinary and nothing short of hard work, great luck or the combination.

A Warranted Digression      

Commercial kitchen and co-packers are the equivalent of a manufacturer; if it is a hardware product or warehousing if import related.  Pizza Cupcake purposefully sought after one of the biggest co-packers who happened to co-pack for Bantam Bagels, another successful Shark Tank alum.  After appearing on Shark Tank; Bantam Bagel launched nationwide with a Starbucks partnership distribution deal.  Aside from Starbucks, Bantam Bagels could also be found in the frozen food aisle section of 16,000 retail stores.  As of October 2018, Bantam Bagels had already sold for $34 million.  That is an incredible exit for the founders and investors; however, that is a brand which will continually generate revenue for its new owners perpetually.  Traditionally, Bagels are viewed as breakfast related. Hence, Pizza Cupcake should have a wider appeal and potentially grab a larger market share because two impressive names are baked into the company’s brand. Pizzas and Cupcake, that was a genius idea which will serve the company well over the long run.

Negotiations 

Pizza Cupcake’s negotiation process is by far one of the most exhilarating. It will certainly keep you on the edge of your seat.  Michelle is tough with no holds barred, at some point anything could have gone wrong to make the Sharks disconnect or disengage.  While a high percentage of people come on the show to do a deal; others have reasons for which they come on the show.   A major part is exposure; sales will inevitably rise, the video from Shark Tank will be inserted on their website and social media.  Appearing on Shark Tank can be used as leverage with subsequent investors etc.  While it certainly seems that Pizza Cupcake entered “The Tank” to do a deal, securing investments is not always guaranteed.  However, if your edible product or company is the hottest thing since sliced bread, and you have options, then proceed as you wish or see fit.  Options is referring to investors, lines of credit, purchase order or anything that will sustain you until the next liquidity event arises.

The Tight Corner 

Mark, Robert, Kevin and Daymond gracefully left the Tank for Lori who is better suited because of her background, expertise and business portfolio.  Lori countered with $125,000 for a 20 percent stake which is 4X more equity for the same amount of investment.  It means the $2.5 million valuation was cut down to $625,000.  You heard the Sharks simultaneously exclaiming ouch.  Robert interjected by saying “it’s like a mob offer.”  Lori said “no it’s not, it’s a great offer, I could have gone higher actually.”  It was surprising that Mark pulled out, especially given the fact that he owns the Dallas Mavericks, the foot traffic could really consume a lot of those cupcakes.   As Mark stated; selling frozen, the distribution and the price are extremely difficult.  Now is when it becomes really dicey, because when you’re left with one shark who can smell your blood, or a VC who perceives desperation;  you’re somewhat disadvantaged.  The VC or Shark whom you’re left with invested in the successful company you’d like to emulate. This VC or Shark has all the contacts and the keys to replicate success, so what do you do?  Lori’s said “what we can bring to the table is worth it.”  “We’ll help you skyrocket this.”

One of the best counters and most exhilarating back-to-back negotiations

Michelle is phenomenal.  Her display comes across as a professional negotiator.  While the entire presentation and pitch was great!  The integral and certainly most entertaining part which could make or break a company is between 8:58 to 11:36 minutes.  Michelle countered, stating 20 percent is too high for us.  She listed the fact that the most difficult part of finding a co-packer. Michelle then countered again saying;  would you be willing to do $125,000 for 10 percent?  “We work really hard.”   “You wouldn’t have to do too much heavy lifting.” “We have investors onboard who are also very strategic.”   “We’ve been in conversations with one of the largest distributors right now, who wants us to participate in their incubator program to get us into retail.”  

• Lori came back with; I will also be opening so many doors if I can get you into Starbucks nationwide, that’s 9,000 locations. Then getting into Kroger, Albertsons it will be so worth it to you.  I will not go to 10 percent, my bottom line is 15 percent.
• Michelle came back again with would you do $125,000 for 12.5% Lori, please?
• Lori “You know what, I love you, but you will love me, 15 percent.”   “You want me to be invested in you.”
• Michelle again:  Would you be willing to do $150,000 for 15 percent?
•  Lori “$125,000 for 15 percent and I promise you, you will not regret it.” 
  
• After Michelle did some pleading but Lori didn’t budge, Michelle decided to remind Lori about Bantam Bagel’s numbers.  “So, you invested in Bantam Bagels at a $1.1 million valuation, when they were on the show and we have a higher revenue than them.”  “We have also figured out our co packer situation.”  “We also have, we are shipping direct-to-consumer.”

Lori used her executive authority, clout and power to reiterate why she will not budge.  In this particular scenario; there were no competing Sharks to counter, hence the only Shark had the upper hand and better cards.  As the negotiation pressure was heating up in the tank; Kevin O’leary stepped in to diffuse the situation in order for things to be put in the right perspective to hopefully secure the deal. Mr. Wonderful said “guys when you only have one offer, you are skating on really thin ice, and now you have to make a decision.”  For one last time which most people were not expecting, Michelle countered again with $125,000 for 12.5% equity and 2.5% in advisory shares. That was the final counter that clenched the deal. Lori wanted the deal as well, so by now she just accepted before things got sour or turn stale. She still got what she asked for up to a certain point, except 2.5% which will be options she has to use her money to buy at a discount.  It will be cheaper so not too much of a big deal there. 

Trust your Business Partner 

Andrea’s silence during the negotiations was admirable. It demonstrated absolute belief in his business partner, who happens to be his wife.  There is nothing wrong with consulting your partner when things get a little bit heated.  Andrea’s resolve is impressive because he had complete faith in his partner.  Quick digression, choosing a business partner is difficult because partners have to complement each other.  That is quite evident in this scenario.  If you do not have complete faith in your partner to execute on his or her divided labor, do not hire or partner up.    

Conclusion 

The zeal with which Pizza Cupcake served its pitch, coupled with the product’s natural appeal and Lori’s investment; leads to the conclusion that this is one company to expect great things from.  Contingent on how large the vision is, this could be a global product which people can’t wait to munch on, in the next 5 to 10 years.  It couldn’t have been said better than how Michelle passionately stated it. “We are living that American dream, where we have our family business, we have our dream Shark on our team and we can just really start scaling and having Pizza Cupcake as a household brand.”  Andrea and Michelle convey what love can accomplish, their union baked Pizza Cupcake into existence.  Additionally, their complementary skills formed a company to reckon with. Check out Pizza Cupcake