ECOS Vegetable Straws
“Only farmers would dare to mortgage their homes to create products like these.” – Founder
Development Stage: Pre-Seed
What you need to show to investors:
- MVP (Minimum Viable Product): Positive customer reviews.
- Founder’s background: Passion, concerns related to the industry.
- Exit experience: Successful exit experience is a plus.
- Market size: Attractive market size.
Highlights:
- Product: Edible and drinkable vegetable straws, a unique formula for creating vegetable straws.
- Founder: 10 years of working abroad in agriculture, specializing in agricultural mechanization for farmers.
- Standards: Meets FDA standards and is ready for export to Europe.
- Setback and resilience: Lost a container shipment to the UK due to unforeseen temperature and weather changes. The founder mortgaged 3 houses to continue developing the product.
- International recognition: The product was well-received at European trade shows, leading to potential export deals. The founder’s desire is to make this high-quality product accessible to Vietnamese consumers.
Product Value Proposition for Straws:
- Non-sticky, tasteless, and odorless.
- Environmentally friendly and safe for consumers.
- Production secret: Achieving the right elasticity to prevent the straw from dissolving or breaking during export to Europe.
Comparison to Existing Market Products:
- Plastic straws are easy to produce.
- Our straws require more time and resources.
- Three years of development: Successfully passed 1,000 ingredient tests in Europe.
- Certification: Raw materials are sourced from non-deforestation areas, meeting European export standards.
- Packaging: 50 straws per box, factory price of 28,000 VND, or 500 VND per straw (15 times the price of plastic straws).
Founder’s Investment Proposal:
Seeking VND5bn for a 14% stake, resulting in a pre-money valuation of VND30.7bn.
Budget and R&D Plans:
- Focus on investing in machinery and automation for the factory.
- Developing edible corn starch pouches.
Business Performance:
- 2024 target: Produce 5 million straws, equivalent to 5 20-foot containers.
- Revenue: VND2.5bn in the first half of 2024.
Negotiation Standpoints:
- Shark Nga offers support for a utility patent and agrees to the VND5bn / 14% deal.
- Shark Thái: Strong in manufacturing and automation, offers climate simulation machines to test products for suitability in different countries. Proposes VND15bn / 51% for 3 years, then a complete exit.
- Shark Minh: Worries about competitors copying the product.
- Founder: Wants to upgrade quickly and efficiently to be competitive on price.
- Proposal: To convert the cooperative into a company.
- Founder: Not focused on the percentage of ownership, but on the mission of helping farmers.
- Founder: Rejects the 51% offer in this round.
- Founder: Wants to focus on production and lets the two sharks handle finance, business, distribution, and taxes.
Final Decision:
VND11bn for 40% to Shark Thái, with a post-money valuation of VND27.5bn. The founder retains management control for the first 3 years.
Overall Assessment of the Deal:
- Knowing when to let go is a sign of a great leader. Knowing your strengths and delegating tasks to others is not something everyone can do. This farmer-founder is a true leader. One step back can lead to ten steps forward.
- The founder is a production expert, so the shark’s involvement in management is a good thing. If the company doesn’t succeed commercially in the first three years, the product and the founder’s assets will be at risk. Regretting lost opportunities is worse than relying on others.
- Shark Tank is becoming an incubator for startups. The sharks work hard to help entrepreneurs. To truly help a pre-seed company, a lot of hands-on work is required. Investing money and working together is essentially becoming a co-founder.
- It’s reasonable for the shark to want a majority stake (36-51%) because different perspectives on commerce, management, and production can lead to conflicting decisions. This happened in a previous case I encountered. Selling a good product to Vietnamese people is a good idea, but it might not work in a market economy. European markets, with their long history of economic development, prioritize sustainable products. In Vietnam, the market for premium products is smaller. The company should focus on exporting to Europe or Northeast Asia.
- Because of the production-oriented mindset, many companies end up with excess inventory. This is the opposite of a commercial mindset. The market, customers, brand, and distribution channels should drive production. Shark Thái is the right person to lead from the beginning. However, this could lead to future conflicts if not clearly defined in the shareholder agreement.
- The founder might get a better deal than the shark. The shark will have to put in a lot of effort. The key is whether both parties agree on the terms of the deal and the distribution of power.
- The shark has many companies and projects. Taking on this company for three years is a high-risk investment.
- Ideally, the founder should learn how to manage or hire a co-founder CEO.
- If the shark takes on too much responsibility, they might end up with a “high effort, bad return” situation.
- If the shark wants a majority stake, they need to invest a significant amount.
- The market needs good founders and deals, not just money. Effective management is crucial.
We’ve been thinking:
- Is there anyone who can speed up this process so that the founder can receive funding? How long will we have to wait, and at what cost? And even if we wait, is there any guarantee that they will reach the funding stage? Or will they still face a 90% failure rate as the statistics suggest?
- So, I think we should be more empathetic towards those who are supporting the market during this time, because no one else is doing it.
- Waiting is always easier than taking action.
- I hope this eleventh point provides you with more perspectives on why we want more Vietnamese entrepreneurs/founders to understand finance and accounting to become true businesspeople.
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