Development Stage: Pre-Seed.
Founders need to show investors:
– MVP (Minimum Viable Product) has received positive customer feedback.
– Founder’s background is relevant to the industry – a PhD in Biochemistry from Spain.
– Previous successful exit is a plus point.
Highlights:
- Product can be used on a variety of surfaces.
- Founder is a chemistry PhD from Europe.
- Affordable price for consumers: 89,000 (Is this price reasonable, let’s discuss).
- Meets diverse needs: Cleaning clothes, grease, pots and pans.
- Environmentally friendly, using many natural ingredients. Pine essential oil can clean, dissolve cholesterol, and repel insects.
- The product maker has an open mind, is determined, and is thoughtful.
- Customer NPS: 4.9/5 stars.
- Imports 30% of raw materials directly from abroad.
Weaknesses in negotiation that affect price:
- Not strong in sales and marketing
- COGS is not optimized, reaching over 40%
Comparison of value and price:
- Compared to imported products, the quality is similar but 10-30% cheaper.
- Compared to domestic OEMs, the quality is superior.
Deal structure:
- 3 billion for 10% equity. Post-money valuation = 30 billion.
- Raise capital to expand production and distribution channels.
- Expectations: Year-over-year growth rate: 100-300% for the next 3 years.
Balance sheet and P&L information:
- Equity/Share capital: 1 billion
- Factory: 300 square meters, 5 employees.
- Revenue from 2023 through D2C: 2 billion.
- Customers return to purchase after 60 days.
- Intangible assets, patents: 15 billion.
Cost of Goods Sold (COGS) Breakdown:
- Direct materials: 24%
- Personnel costs: 8.8%
- Selling expenses: 18.5%
- Platform discount: 18-25%
- Materials + Production: 31% -> General production costs: 7% EBITDA: 100% – (24% + 7% + 8.8%) – 18.5% – 25% = 16.7%.
Questions:
- Without considering depreciation and interest, the production model lists a lot of depreciable fixed assets and intangible assets.
- None of the 5 sharks are very familiar with e-commerce and wholesale. For example, Shark Phú.
- The valuation is quite high compared to the capital contribution and business results. However, it’s not completely unreasonable if the intangible assets are valued correctly at 15 billion.
Future Outlook:
- Founder’s commitment: Revenue target of 100 billion/year within 3-4 years.
- Alternative sales method: Selling licenses to corporations and taking a percentage of their sales. The founder rejected this option.
- New R&D products: A refrigerator cleaning spray that is also drinkable. As a consumer, I find this interesting.
- 2024 commitment: 15 billion revenue, 3.3 billion profit -> EBITDA 22%.
Buyer negotiation:
- Shark Bình: 3 billion for 35%.
- Shark Hưng: 1 billion for equity, 2 billion as a loan, to avoid diluting the founders’ equity too early.
- Founder team: 3 billion for 18%. Final deal: 3 billion for 18% to Shark Thái due to his enthusiasm and focus.
Overall deal assessment:
- The deal size is relatively small, making it essentially a venture capital investment.
- The two founders still need significant time to transition into various management roles at different stages.
- Investors will have to put in a lot of effort doing tasks that the founders should be doing, such as sales and marketing.
- The deal is relatively inefficient for an asset management or investment company due to high management costs.
- The deal is small and the potential profit upon exit is not significant.
- If a team of lawyers and finance professionals were involved in due diligence, the six-month deal wouldn’t be enough to cover their salaries. This is more suitable for individual investors.
- Impressed by the female founder’s strong R&D background. However, rapid growth to achieve a valuation based on revenue will be difficult (due to the traditional nature of the business), and it’s unlikely to yield high returns as typical venture capital deals.
- The 18% dilution is somewhat suboptimal. Investors will need to use soft power to influence decisions since 18% is insufficient to make decisions, but owning a large stake in a small company too early can hinder its growth. If I were them, I would offer a convertible note with liquidation preference to incentivize the founders. Because, in reality, more than 80% of fundraising attempts by startups fail due to their small size. Furthermore, capital from friends and family who don’t understand finance or business is very expensive, as Shark Thái pointed out, because misunderstandings can lead to future conflicts.
- Fundamentally, the deal structure is highly risky, but it’s uncertain whether it can guarantee an xx times return on investment.
If we delve deeper into the accounting, the cost calculations are not entirely accurate, however, given the small size, it’s not necessary to delve too deep into the nature of the costs (we can temporarily accept this within the time constraints of the broadcast).
A group of investors from my team is looking to buy a pharmaceutical or cosmetic processing plant, similar to Shark Thái’s factory, but with a minimum area of 10,000 m2. If you can connect me with someone who can introduce me, please let me know.