How an ugly Christmas sweater company became Robert Herjavec's best 'Shark Tank' investment

It's the most wonderful time of the year for retailers - and for "Shark Tank" investor Robert Herjavec.

Herjavec has consistently said his favorite investment from the show is goofy holiday apparel company Tipsy Elves. He invested $100,000 for 10% equity in the business two seasons ago in 2013.

Cofounder Nick Morton said part of it has to do with the friendship he and his business partner Evan Mendelsohn have developed with Herjavec. "We get along really well," Morton said.

"I'm pretty busy, so I like to invest in people that I like to hang with," Herjavec told Business Insider last year. "For me, I always want to invest in somebody who's incredibly, deeply passionate about the business, and these guys wanted to run a business. I mean they wanted to be there 24/7."

But beyond being good guys to hang with, Morton and Mendelsohn are making Herjavec a good chunk of money.

Herjavec made back his investment after just a few months, and he said that it's been his most profitable venture from the show. Tipsy Elves has been profitable since launching in 2011 and continues to grow steadily. Morton said he expects the company to end the year with $10-$15 million in sales, up from $7 million last year.

Before they became kings of the "ugly" Christmas sweater movement in the US and Canada, Mendelsohn was a lawyer and Morton a dental surgeon, with six college degrees between them.

In 2011, Mendelsohn noticed a trend of young adults wearing gaudy sweaters to holiday parties, as an ironic nod to bad gifts they received as kids. He figured that there was a perfect opening for a company to own this market and called Morton, an old friend from their undergraduate years at the University of California, San Diego, to see if he wanted to participate in a fun side project.

Mendelsohn built websites for companies as a way to make extra money, but joked that ultimately Tipsy Elves was a dentist partnering with an attorney who knew a little bit about search engine optimization starting an online retail company. Despite not really knowing what they were doing, Mendelsohn said, they used $140,000 of their own money to launch the business, sought advice from business school friends, and used Morton's family ties in China to secure an affordable supplier.

They created all of the sweater designs on their own, differentiating their product by favoring irreverent and silly designs over tacky ones and using materials of a much higher quality than competitors in the novelty space. And as an extra incentive to both themselves and customers, they partnered with Save the Children to dedicate a portion of their profits to providing underprivileged American children with winter clothing.

The two founders sold $380,000 of sweaters by the end of the first year, and then sold $900,000 the next. Mendelsohn committed full-time to Tipsy Elves in 2012, and Morton followed in 2014.

When Herjavec signed on, he told Mendelsohn and Morton that even though he trusted their judgment that the ugly sweater trend had legs, they needed to become a year-round company to weather any sudden shift in taste.

This year, Tipsy Elves offered clothing and accessories for Christmas, Hanukkah, Valentine's Day, St. Patrick's Day, July Fourth, Halloween, and college football season. It most recently expanded into ski gear, bringing its total product offerings to around 500, which results in around 2,000 SKUs when factoring in different sizes.

It helped raise the company's profile enough to secure a deal with Sony Pictures for product placement in this year's Seth Rogen holiday comedy "The Night Before", as well as a product giveaway campaign in partnership with Uber. But it came with growing pains, too.

Tipsy Elves had what Morton called "by far the biggest challenge we've faced in five years" when the New Jersey fulfillment center it partnered with failed to deliver 7,000 orders on time to customers, resulting in hundreds of frustrated customer service calls and a handful of damaging reviews on their Facebook ads.

The two cofounders took a flight to the factory and found it teeming with management problems, Morton said. They will most likely be moving order fulfillment in-house beginning in 2016.

"On the whole, we're very happy with our growth, but we didn't maximize potential," Morton said, citing this delivery problem.

But ultimately, he sees it as a learning experience that will make the business stronger than ever. "With the way this thing's ramped up so quickly, we've decided if you want something done right, you have to do it yourself," Morton said. "It's the missing piece, I think."