You Should Be Nervous When 'Shark Tank' Investors Are This Excited About A Deal

Jenna GoudreauSep 25, 2013, 00:42 IST

abc.go.comOn Friday's premiere of the fifth season of ABC's reality pitch show "Shark Tank," pitches ranged from what Mark Cuban called the worst in the history of the show to one so enticing every Shark wanted a piece of it. Sweet Ballz, a packaged food startup by Dallas-based entrepreneurs James McDonald and Cole Egger, swept all five Sharks into a competitive bidding war that ultimately forced the entrepreneurs to choose who they wanted as an investor - a rare yet flattering place to be. However, with so much interest in their company, they may have given up too much too soon. The entrepreneurs initially asked for $250,000 in exchange for 10% of their company, which would value the company at $2.5 million. The Sweet Ballz business is selling packaged cake balls that come in packs of four in flavors like red velvet, chocolate, and cookies and cream. It capitalizes on the trend of the cake pop, but the balls come without the stick and a 45-day shelf life. "Which one of you is ready to make some sweet, sweet dough with our Sweet Ballz?" McDonald asked.

Screenshot from ABC's "Shark Tank"The cake balls come in flavors like red velvet, chocolate, and cookies and cream.The Sharks were clearly intrigued and raved about the taste. They peppered the business owners with questions, and McDonald and Egger didn't disappoint. The packs retail for $1.99 to $2.49 each, but cost only 86 cents to make. They are already sold at 7-Eleven, one of the largest convenience stores in America, and since 95% of their sales are from 7-Eleven, there's plenty of room to grow distribution. If the Sharks weren't already hooked, their eyes grew even wider when the business owners said they'd done $700,000 in sales in the past 90 days and had profits of $95,000. "Things are going great for you," said investor Robert Herjavec. "Why are you here?" That question alone should have tipped the business owners off that they had something of obvious value to the Sharks. Egger said the investment would go a long way towards growing the business and its distribution points. Then the feeding frenzy began. Barbara Corcoran offered $250,000 for a 40% stake, and Kevin O'Leary undercut it with the same offer but for a 30% stake. Lori Greiner jumped in with an offer for a 36% stake, saying it comes with her QVC network.

Screenshot from ABC's "Shark Tank"The Sharks start a bidding war.Soon the panel of five Sharks, who had devolved into bickering over which one has the best network, divided themselves into two offers: Cuban and Corcoran would go in together at $250,000 for a 25% stake; and O'Leary, Greiner, and Herjavec jointly offered $250,000 for a 30% stake. They asked, Who do you want to work with? It was a strong move on the Sharks' part - one parents use often. Give someone only two options, and you ensure they'll end up choosing something you've sanctioned. In this case, the business owners chose Cuban and Corcoran, an investment that values their company at $1 million. When the business owners walked away pumping their fists and celebrating, they seemed to have forgotten that they were initially seeking a valuation of $2.5 million. They have a hot business, and it will surely get hotter with a large cash infusion and powerful investors behind them. But they also just gave away a quarter of their business in what seems a fire-sale deal for the Sharks. "I think they made a mistake," said O'Leary as the credits rolled.

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You Should Be Nervous When 'Shark Tank' Investors Are This Excited About A Deal