What do you get when you strap on a few sensors fed by WiFi? You get the ability to slap yourself in odd places to create percussive sounds; hence the name “DrumPants”. Tyler, one of the founders, is a drummer and after working with musicians, tech developers and read to wear designers, he and his partner Lei come to pitch their idea on ABC Shark Tank.
The first video I saw on DrumPants was made in 2005, so this is not a new idea. They’ve been working on this a long time.
The demonstration of how this worked was really fun and you can see it here:
What has DrumPants accomplished so far?
Even before they got on Shark Tank, the DrumPants team of Lei and Tyler (a drummer) had accomplished some interesting milestones: they raised $75K on Kickstarter, more than their goal.
The owners also started pre-selling the product even though they haven’t entered into production yet. In many ways, this was a proof of concept; not a real business.
But it was interesting and it caught the imagination of two sharks: Daymond John and Robert Herjavec both made offers that were great but totally different. Let’s unpack them.
Which ABC Shark Tank Deal is Best?
Daymond John: Licensing Agreement
Daymond John said, “I’ll sign a licensing deal with you and guarantee you $1MM per year in sales. That means you get $100K for doing nothing.” The good news is, he’s paying a 10% fee on Net Revenues.
That’s a pretty hefty sum for just showing up. The bad news is, licensing agreements are not like diamonds; they’re not forever. My guess is, this agreement could last for 3-5 five years and then be terminated.
Even if the product goes viral, Daymond is a very smart guy and he could build a new brand that skirts patent protection and come out with his own line. I’m not saying he will do this, he could however and it would be perfectly legal.
Mark Cuban hinted this is not unique technology and he was out quickly because of it.
Robert Herjavec: Equity Stake
Robert offered $260K for 20% stake in something that’s not even a business yet. Notice what Robert does when he speaks; he leans in and says “this is really interesting.
There’s something here I want to explore so I’m interested in the future of what is possible”.
Robert’s giving the founders a valuation of over $1MM without even having shipped one product to one customer! Holy cow.
There’s something else here you must not miss; Robert has a cyber-security company that’s valued in the billions. I’d bet real money that he has some of the top coders and security experts in the world working for him.
Only these people can do battle with the hackers from the dark side coming from North Korea and who knows where else.
Not only is Robert giving them the benefit of the doubt, he’s offering them equity on something that’s not patented (yet) AND giving them access to his top notch research and development team to turn this concept into a real business.
That alone is worth what he’s offering and the DrumPants owners have to think about it?
What Should DrumPants Do?
The net is this; Daymond John is offering some cash flow in the present for a few years.
Robert is offering equity which has upside potential because of his willingness to develop this concept for new markets and for the longer term.
Let’s see, $100K per year for a few years or millions with the privilege of working with world class developers.
Hmmm, that’s an easy call as far as I’m concerned but the founders floundered. Kevin is a drummer and needed to #knowyournumbers. I doubt he could assess these offers.
What Happened on ABC Shark Tank
If you watch the video until the end, it’s painful. The founders of DrumPants waited so long to make a decision, both offers were taken off the table.
And Kevin couldn’t wait to fire them off the set. “You’re dead, you’re out, get outta here!”
What Decision Would You Have Made on Shark Tank?
What would you do if you had to make this split second decision? Would you even know how to assess an offer?
DrumPants missed the chance of a lifetime. They really need to read Accounting for the Numberphobic; A Survival Guide for Small Business Owners.
Chapter Eight, “How to Win Friends and Influence Bankers” should be required reading!