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Veggie Mama Gets Deal on Shark Tank
If you follow the Shark Tank Success Blog you already know how I feel about offers on the Show involving royalty fees in perpetuity or for the life of that product. For the Sharks or any Angel Investor making a deal with this little addition to the terms of the contract, they now has you by the balls for the "life of that business'" and there's nothing you can ever do about it. A royalty fee in perpetuity basically guarantees the investor will be paid back in record time and continue to suck profits right off the top for the life of that businesses existence.
Kevin O'Leary is now starting to get famous for making such ridiculous offers that no entrepreneur in their right mind would ever except if they understood what they were getting themselves into. Once you see O'Leary make a royalty offer involving no equity now almost on a weekly basis, it's clear He's not necessarily trying to screw the business, but testing the business owners judgment for making correct decisions while under pressure of the Shark Tank Show. If any contestant ever does decide to take Kevin up on basically a Business "Shark Loan" that never ends like the Wicked Good Cupcakes did in Season 4, it's still possible for the entrepreneur to make a lot of money while adding to O'Leary's Fortune.
I have almost come to expect an offer from O'Leary like this when he's on the fence about investing in certain products, but still wants to throw some sort of offer on the table. But Lori Greiner and Robert Herjevic on the other hand, I would of never expected to make such an offer.
Apparently Lori and Robert watched the Shark Tank Update Featuring Wicked Good Cupcakes and seen how fast O'Leary was paid back his full $75,000.00 investment in a matter of weeks after the Shark Tank Effect took hold and decided maybe this strategy could work for them while investing in the Veggie Mama Business.
Actually Robert and Theresa Fraijo the owners of the Veggie Mama Brand, had a few offers on the table with Kevin O'Leary offering the $75k the Fraijo's were seeking to expand the business, but wants 50 cents for every unit sold until his investment is recouped and an additional 25 cents into perpetuity.
Robert Herjevic apparently really likes the Veggie Mama Smoothies and makes an offer almost to good too be true with $75k for 25% of the business with an additional $75k when Robert quits his job and comes to work full time at the Family Business. The Fraijo's greet his generous offer with a simple "O.K., Thank you" which stuns Mark Cuban for not accepting the deal on the spot.
Lori Greiner also wants a piece of the Veggie Mama Business and makes her own offer for $75,000.00 and a 20% equity stake in the company. She will also put up an additional $75k when needed which matches Herjevic's financial commitment.
Kevin O'Leary not to be outdone, modifies his offer to pay $150,000.00 upfront (double the amount the Fraijo's were asking for) for no equity but the same royalty fees going into perpetuity. This gives Lori and Robert time to come up with their first (and hopefully only) offer that also involves a royalty fee for life.
Herjevic lays out the new details of the offer that isn't nearly as attractive as it was a few minutes ago. Robert and Lori now combine their offers for 20% of the Veggie Mama Garden Pops for $75k and an additional $75k when Robert Fraijo quits being a Lawyer and joins the company full time. He then throws in "O ya, by the way, we also want 20 cents for every product sold into perpetuity".
Barbara Corcoran and Mark Cuban who both are already out of the deal, has finally heard enough from the other Sharks trying to corner Veggie Mama into a royalty deal. Barbara convinces Mark she'll do all the leg work if He wants to go in the deal with her and save Veggie Mama from the perpetuity trap. Cuban and Corcoran combine forces and offer the Fraijo's $75k for 20% equity and No Royalty Fee's whatsoever. They accept the deal almost immediately realizing Barbara and Mark just saved their business from potentially making a huge business mistake they would of been paying for the rest of Veggie Mama's life.
It's no secret Mark Cuban is not a fan of any business agreement involving royalty fees into perpetuity in any way, shape or form. These deals are great for the investor virtually guaranteeing they will be paid back in record time, but not so good for the small business owner who now has a never ending expense put on every item sold. Mark did a great job helping get rid of the 2-5% equity commitment for contestants to appear on the Shark Tank, maybe he could do the same getting rid of any offers made by the Sharks with a perpetuity clause attached.