What happens when you face the toughest negotiators in business with a $20 million valuation and a revolutionary recovery product? Firefly Recovery CEO Anthony Kjenstad joins Michelle Seiler Tucker to discuss his Shark Tank pitch for his innovative device, which utilizes nerve stimulation to enhance blood flow and promote faster post-workout recovery. Listen as he defends his valuation and subscription-based model, navigating contentious debates over equity, royalties, and the importance of owning intellectual property (IP). Anthony also reveals what happened after Shark Tank and why they are still going strong even after falling short of getting a deal. Tune in now to get the golden nuggets that can make or break your exit strategy!
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Got IP? With Anthony Kjenstad, CEO Of Firefly
Welcome to another episode where we interview Shark Tank guests. It’s fun, it’s exciting, it’s fast. It’s like drinking through a lot of a fire hose. Buckle your seatbelts, we’re with another great guest. His name is Anthony, which is my one of my favorite male names because Anthony is my godfather to my daughter. Welcome to the show, Anthony Kjenstad.
Yes, thanks for having me. I appreciate it.
It’s a pleasure to have you on. We’re going to add a lot of content, a lot of value, so make sure you take notes, make sure you go back and read this episode again and again and share it with your network. Here we go. Are you ready, Anthony?
I’m ready.
First into the tank are entrepreneurs who believe they have an important post-workout tool.
Hi, Sharks. My name is Anthony Kjenstad.
And I’m Lauren Campbell. We’re seeking $500,000 for 2.5%.
Okay, we’ve got to stop right there before we dig too deep into valuation because valuation is going to be a point of contention going forward. How did you come up with that valuation, and why just 2.5%? The reason I ask that question, Anthony, is because I buy businesses, I invest in businesses myself. I can’t get up in the morning, and I can’t go to work for 2.5% of anything at all. I did it one time. One time I made that mistake, and it wasn’t worth it. How did you and Lauren come up with that just real quick without getting too far into the future?
We had done a capital raise in 2022 with some athletes at around a $10 million valuation. We had grown the company two years past that, had doubled sales over the last two years. That’s how we came up with what we thought was a fair valuation. When you go into the Shark Tank, and if you watch Shark Tank, you always know they’re going to work you and get more percentage out of you and stuff like that. We thought that was a great place to start.
That was pre-revenue, right?
No. We were already making money when we did our $10 million valuation. At that point, we had about $1.5 million in sales.
It worked out for Anthony, but I would encourage most entrepreneurs to come to the Shark Tank, have a higher percentage that you’re willing to part with for the right amount of investment, because a lot of investors just are not interested in a small percentage like that. Do you agree?
Totally agree. We knew they would negotiate. My partners are Shark Tank addicts, so we knew we were going to give up more than 2.5%, but we figured it was a good place to start.
But you just don’t want to go in there and shock them so much that they’re not listening because sometimes, when the percentage is so low, they just turn off and tune out. We want to make sure that we are at the perfect spot where, yes, we can get them higher, but they’re not tuning out. They’re really interested to learn more.
Sure, absolutely. Good conversation.
Our company, Firefly Recovery.
Firefly: A Company About Recovery
Sharks, did you know many athletes, recovery has become as important as working out?
Athletes are talking about their recovery, they’re tracking their recovery, they’re even posting about it on social media.
Recovery modalities have not kept up with the times. We see products like these pneumatic compression boots, but they’re clunky, time-consuming, and they do not fit into the active lifestyle of today’s athlete.
Without getting too far into the show because I know one of the Sharks uses that, the majority of people don’t use that. It’s more athletes, correct, like bodybuilders and of that nature?
I wouldn’t say bodybuilders per se, but I mean that’s a segment that uses them. Certainly, the athletic area where we predominantly go is NFL, NBA, NCAA colleges, people who are in the gym 3, 4, 5 times a week, really working on themselves and health and wellness. A lot of them are starting to use these modalities. I wouldn’t say the general pop uses them but there is a large amount of people who actually do use them. The companies out there like Therabody, Hyperice that sell pneumatic compression devices, they’re billion-dollar companies. There’s a big segment of people using the products.
Okay, but your ideal market is really athletes.
Interestingly enough, that’s where we started because my background’s medical device, so I started with athletic trainers and really proving the product in that space, but 60% of our consumers are actually long-haul travelers.
We’ll get into the product, and I’ll tell you why I see a benefit for me, and I’m not the gym rat, but I do work out, and I see a benefit beyond just working out, and I’ll tell you in a few minutes.
Sounds good.
Now, athletes have a better, easier, portable, mobile recovery solution. Firefly Recovery. Why don’t we invite one of our loyal customers, five-time Olympian Kerri Walsh Jennings, to join us and talk about how Firefly has helped her and show you how it works.
Let’s stop there. I have to go back to my Olympic history. What was Kerri’s story?
She’s an Olympic volleyball player and a five-time Olympian on the beach. Kerri embraced the product very early. She’s based out of Manhattan Beach at the time I met her early in the journey of Firefly. We got to become friends. She’s been doing some stuff in the volleyball world trying to start her own p1440, which is her own tournament, which competed with the AVP. She adopted our product early, really tried to get it out to the athletes. When we did Shark Tank and we got this opportunity we reached out to her because we thought it would be great to have an athlete come and represent us. She was a big Shark Tank fan, so she actually was very interested in doing it.
Entrepreneurs, it’s always good when you have social proof. Kerri is social proof, plus she’s an Olympic celebrity. When you can get an Olympic celebrity to endorse your company and use your product, that that validates your product when you can get a celebrity endorsement that uses your product. It really catapults your business to the very next level. It was good that you got Kerri, and it’s great social proof. It’s always better when somebody else sells you than when you sell yourself.
For sure. She’s just an exemplary human being. She’s amazing. What you see on TV, she’s even ten times bigger than that. She was just great to be around. She actually helped Lauren and I with our nerves because she’s used to being on the world stage. She really helped us get prepared for Shark Tank as well, which was great.
Let’s see if she can help Lindsey Vonn.
We’ve had discussions.
Have you?
Yeah. A lot of athletes use our product, and we’ve had discussions. We’re a small brand, so it’s hard to get these big athletes really because they want a lot of money or they represent Mercedes and these other big companies. When you got this small brand, it’s very hard to compete for their time. At a very high level, Firefly is used across the PGA, LIV Golf, elite skiers. We’re in almost every pro and college team in the country right now. We’ve got a really a lot of high-end athletes using the product.
Let’s never call your brand small. Let’s just say your brand is blooming and growing. You guys, entrepreneurs out there, never call yourself small.
I like it. It’s a little chip on my shoulder that we are competing against big, big companies relative to our size. I like actually branding us small. I think it gives us an advantage. At least in the training room, the athletic training room, we’re talking people want to work with a small company where they’re working with the founders and I think it gives us an advantage in certain aspects of our business.
Languaging is everything. Let’s change small to intimate.
There you go. I like it. I will adopt that.
Intimate, because language is everything. I don’t like entrepreneurs calling themselves small. They’re a work in progress. All right, let’s see what she has to say.
We’re good.
What an honor.
You guys are crushing it.
As you can see, the Firefly gently stimulates the peroneal nerve in the leg to cause the foot to flutter. We call that the Firefly flutter. This flutter action acts as a natural pump to increase systemic blood flow, speed up recovery times while reducing soreness.
We move three times more blood flow than compression. Sharks, 800 pro and college teams are already purchasing the Firefly.
Who wants to set the athletic recovery market on fire?
I see this product helping with circulation.
For sure. The background to this product is really it was a medical device turned recovery tool. There’s really two technology there’s one technology, one’s in the medical space, one’s in the over-the-counter space. You can’t talk about the medical application of an over-the-counter product even though it’s the same technology.
This product is being used in hospitals for prevention of blood clots, reducing post-op swelling, healing wounds faster. The medical version of it is called Gekko, and Firefly is the over-the-counter version. Very similar technology, different wavelengths, etc., different strengths. Circulation does a lot of good things. Helps athletes recover, helps people have long-haul travel better experiences for that. People sit at desks all day, like there’s a lot of opportunity for the product outside of being an elite athlete.
That was what I was mentioning earlier, is that I have a circulation issue. My feet are always cold, my hands are always cold, have a big-time circulation issue. I’m going to try the product.
I will send you some, Michelle, and when you get it, we can talk about how you would apply it and all that.
I should have tried it before the show.
I know, I missed the opportunity. I usually do send out product in advance, so my apologies. I will get you some.
Thank you.
Join us on Team Firefly.
Where is the injury per se on Kerri?
No injury at all. We’re talking about recovery. You work out, these athletes are training hard for their event, and then after that, they want to recover faster so they can actually perform better the next day. We used to think of recovery as a day that you take off, but recovery’s a lifestyle. You want to eat better, you want to sleep better, all those things, but a big component of recovery is circulation.
That does make sense because my husband was a professional bodybuilder and he’s like, “You got to have a day of rest. Three days, four days hard in the gym, have your day of rest.” Obviously took care of himself with eating healthy and the right amount of sleep, etc., but rest is not enough to do it.
Our initial slogan was we take the day out of recovery. You don’t have to have recovery day. A lot of these athletes don’t. You can do other things to recover faster and we’re one of the multiple modalities you could use, but I would argue we’re one of the most effective that’s easy to implement. You can slap them on and go about your day and get stuff done and get your treatment while you’re on a plane, working at the desk like you are, etc. Our advantage is very implementable.
You do not have to have a recovery day. A lot of these athletes do not. You can do other things to recover faster. Share on XAnthony, can you pull those compression legs out?
Yes.
I’m a huge investor in Therabody, their percussion recovery company that has massage guns. I feel like you’re talking to me right now with those compression legs. I literally wear them because I’m getting older. Are you saying that this device replaces the need to wear those compression legs, which I have to sit on the chair, prop my legs up, my kids think I’m an alien because my legs get really swelled up and they come down. I can put that on my leg and just walk around and assume life is normal and I don’t have to wear that?
Absolutely.
Can we get a world-class athlete to also tell us user side?
That was great that he’s used the other product and is looking at now changing his product to use Firefly, which is a great thing to have an investor in the tank that already suffers from what you’re talking about and is looking to make a change. Any feedback on that real quick because we got to get moving?
Yeah. Rashawn was a guest Shark, so we didn’t know about him until like a week or two before we were actually going to air. It was great to know his background. He’s part owner in Atlanta Falcons. It was great to hear that, and we were very excited because you think about which Shark you’re going to work with and then that comes out of his mouth and you’re like, “This is amazing.”
Absolutely. That was a great lead-in for you.
Definitely, our eyes changed right to him right out of the gate.
I have been a pro athlete for over twenty years. I just retired, which still hurts my heart to say out loud. When I’m training and trying to be the best in the world and win gold medals, I would use them. I would notice my legs are lighter, I’m fresher.
Is this only for legs?
It’s a great question.
70% of our blood is in our lower extremities. All we’re doing is using your nervous system to pump it back to your heart faster. It’s a systemic flush.
It’s called onpulse technology, that’s the nerve stimulation.
Do you have a patent for this?
Nine families of patents, 47 patents in total. They are utility patents, and this product is very, very patent-protected.
Okay, so you have 47 patents? I was a little confused there because I thought at first you said 9 then 47.
Nine families of patents, 47 in total. The company that developed this product is a medical-based company. They had a background in like pharmaceuticals, etc. When they developed this product, they patented it very much like you would patent a pharmaceutical product. They came at it from a lot of different angles. Very patent-protected product. That’s why you haven’t seen any competitors in our space.
When you say family patents, what exactly do you mean by that?
There’s different things to patent. Peripheral nerve stimulation of the body to increase blood flow.
Let’s say you get that patent, then there’s patents underneath that?
It’s how you do it, it’s what areas of the body that you can also do outside of just the peroneal nerve, there’s nerves in the elbow, etc. I’m not a patent person at all, so I couldn’t go much deeper in this but their strategy was really to come around it at different angles of patenting it in different ways so that people couldn’t circumnavigate the patent.
I think that’s an important valuable golden nugget right there because when people think of patents, they think of patent pending, you got to you have to file patent pending, utility patent, design patent, etc. Not too many people talk about family of patents and then all the subsequential patents that go under that. We have a supplement company right now that’s got about 20, 30 patents and the same thing where they have families and then they have the patents underneath that. I think that’s important for entrepreneurs to know.
Absolutely. It made us feel very comfortable about our valuation and where we stand with our product with the patents because they’re around for the next nineteen years.
Setting The Valuation At $20 Million
Now let’s talk about the big shocker in the room. 2.5% for $500,000 is a $20 million valuation. Why in the world do you think you are worth $20 million? You know I love to shred around valuation, and I’m getting the weasel out in me.
Lifetime sales we’re at $7.5 million. The last 12 months were $4 million. We are on track this year to do $5.5 million.
I’m confused. Lifetime sell $7.5 million, this year $5 million. What was the EBITDA earnings before interest, taxes, depreciation, and amortization off of that?
EBITDA’s tough for a company like ours because we’re a growing company.
You’re a growing company putting more money back in.
We’re putting all of our money back in. We don’t want to be valued at an EBITDA really because of what we’re doing. We’re profitable but we’re really going off of a sales multiple, not an EBITDA multiple.
You’re going off of a revenue multiple, not EBITDA multiple.
Correct.
Even if you were going off of an EBITDA multiple, all of that stuff that you were pouring back into the business is an adjustment to make on cashflow. I just want entrepreneurs to know that.
In our world, a 3 to 4 times multiple of sales is not a bad number. We thought we came in fairly conservatively because we’re at $7.5 million in sales. We came in at $20 million, we thought we were worth maybe $22.5 million. We did come in real with a realistic expectation of them. We already negotiated ourselves down. We should have probably came in at a higher valuation.
In our world, a three to four times multiple of sales is not a bad number. Share on XI wouldn’t have come in any higher. I would strongly suggest don’t do that. We actually interview Shark Tank guests before they go on Shark Tank and talk about evaluations and how they should position their evaluations.
We felt super comfortable. Again, we had raised $10 million a couple of years prior. We were hockey stick growth, profitable, and in our consumer business, we’re profitable, which a lot of companies aren’t. We felt very comfortable with our multiplier on sales.
On paper, you were not profitable, recasting of financials and making adjustments, you could be more profitable.
You look at you could always be more profitable if you stop spending.
Looking At Long-Term, Not Short-Term, When Selling Your Company
No, I don’t want to confuse the entrepreneurs. We make adjustments, we add back non-recurring expenses and some growth items as long as they’re not capitalized, which always does increase that EBITDA. I don’t want to confuse my entrepreneurs out there.
Okay. I deal with a lot of cfos and I don’t want to get my entrepreneurs confused. It’s very important to understand when you’re putting money into the business, a lot of that investment is a one-time fee that can be adjusted and added back to show more of a positive cash flow as long as it’s not capitalized. I’m not educating you, Anthony, I’m educating the readers.
No, you might be educating me a little as well.
Technology was very focused just on teams. We didn’t really have a direct-to-consumer business.
One quick question about the product. Speaking of the consumer side.
Sorry, we’re over the product merits.
No, I’m over you.
I just want to talk about valuation because it’s the big shockeroo in the room. You are not worth $20 million.
So rude.
I would have to agree on the $20 million valuation. I don’t want to get into a valuation argument here, but I would say if I was one of the Sharks, I might have to agree, but let’s see what they have to say.
Listen, 25 years ago when I started in the investment space at Goldman Sachs, here’s the first thing they taught me. There’s no such thing as a bad deal, it’s just bad prices. Right now, this smells like a good deal, but at a bad price. Let me ask you a few questions. What was the total amount you raised in the past? I feel like you’re jacking this valuation because you’re trying to appease some old investors.
In 2022, we did an athlete-led seed round, we raised $1 million with professional athletes and friends and family. That was at a $10 million pre-money valuation.
That’s all you’ve raised total?
That’s all we’ve raised total.
How much does it cost you to make it?
That’s good because he was making a valid point. In order to get back some of that money from investors, but you only raised $1 million dollars, which is not that much, really. That’s all you needed to get you where you are now.
We have no debt either. We’re, again, profitable, no debt. Again, we felt very confident in our valuation and our upside of where the business is going.
How much you sell it for?
Landed cost is $17.30, retail these sell for $48 for one set.
How long does this last?
If you did recovery every single day like your athletes, they’re going to get a whole month.
Don’t they get pissed off that you’ve got to keep on buying again?
They’re not unhappy with the product because you’re going to get fifteen treatments per pack.
Guys, I love the product, I like you guys, Kerri, congratulations on your success, honoring the country this way. I love it all. Evaluation is a real sticking point for me on this one. I don’t think you’re worth $20 million.
I love how they’re whispering in each other’s ears.
We hadn’t seen that very often. I watched a lot of episodes where never really saw the Sharks get up and start talking to each other like that. I thought it was interesting. Rashawn, this was his first time on Shark Tank, so maybe didn’t know the rules.
I’ve seen it happen many times. If somebody buys the pack, does it last them 30 days, or they only get 15 treatments so if they use it every day, they only last them 15 days?
If you understand the science of recovery where you got to go deep and understand this, increasing blood flow in in increments of two hours a day post-training, post-workout, etc., will help you recover three times faster. Our treatment time’s two hours. The unit lasts 30 hours, so 30 divided by 2, you’ll get 15 treatments per pair. An elite athlete who’s going to be recovering all the time, let’s say every other day, is going to get about a month’s worth of recovery out of this product out of one pack.
Increasing blood flow in increments of two hours a day post-training will help you recover three times faster. Share on XSomebody like myself who might only use a recovery modality 2, 3 times a week, I might get a month and a half out of this $48 pack. I also use it for long-haul travel, East Coast, West Coast, international. You wear it a little longer for those flights and stuff like that. For me, a Firefly pack lasts a month, month and a half for $48. We don’t feel the cost is significant.
Here’s where I’m going to agree with you. I completely disagree with Mark Cuban. I’m going to disagree with him and agree with you. I am going to agree with you on this. I completely disagree with him. I like how you’ve got like a monthly residual income coming in because if they love the product, the product does what it says it’s going to do and if they get the benefit from the product, they are going to keep buying it, and it’s a residual income product where they’re spending money every month.
Now, I don’t know if you’ve actually have created a subscription model where they sign up for subscription and then they get a a discount for that, so you know that you have that subscription model, that money flowing in every month like mailbox money. That’s what makes a company a lot more sellable when you have residual income, when you have that mailbox money. I disagree with him. I spend $48 on protein bars a month. To spend $48 on this product, I think it’s priced per right. I think it’s fair. I think it’s reasonable, and I love the built-in residual income factor.
I agree with you. A cup of coffee’s $6 these days. An athlete spending $3 a treatment is not a big spend.
If we look at like the protein shakes, the protein bars, the protein chips, I eat everything where protein I’m spending $40, $50 a month every single month to get that in. I love how you have a residual model and a subscription model now. Perfect. That I agree with.
Thank you.
I wish you the best of luck.
Thank you.
Guys, I think I’m a little confused on a lot of the things that was said here. I don’t know enough at such a high valuation with where this is right now. Too confusing for me, so I’m out.
I also think that he didn’t have enough information because Lori came back and said, “I want to ask questions about the product,” and as always, Mr. Wonderful cut her off and didn’t let her to do a little deeper dive. That might have had some more clarity.
I think you know this, Michelle, but we were pitching them an hour and fifteen minutes. They’re only showing you 6 to 8 minutes of it. We did go deep into the science, deep into the background of the product. They just didn’t air a lot of that. Damon did have enough information. I just don’t think it’s in his wheelhouse, and we knew that coming in, that Damon probably wouldn’t be an investor in the product.
That’s a good point. All of you that are looking at going on Shark Tank really need to look at everybody’s going to be on the show. Sometimes, like Anthony said, you don’t always have notice until a week before when there’s going to be a guest Shark. You really need to look at all the Sharks and see who’s the best strategic fit and research.
Correct. You never know.
Thank you, Damon.
Guys, let me tell you where I’m at. Look, it sounds amazing, sounds like it works. I can see our guys using it. At its price, $48 a month to get this recovery as opposed to maybe not quite as good with the leggings, it’s just different. The idea of spending $48 a month is insane for 99.99% of the world.
What would you pay to feel better? No, I mean, seriously.
I think you’re looking at it wrong, Mark. It’s $3 a treatment. If I’m training for a marathon.
No, but you start a treatment. Look, it’s recovery.
Recovery is not a treatment unless you’re professional athlete.
No. If you’re training for a marathon, if you’re a crossfitter.
What would you pay to someone who pumps iron daily?
Starbucks is $5 a cup. We’re talking $3 a treatment.
$48 a month. That’s every subscription you have for every streamer that you have. That’s how people will think about it. For those reasons, I’m out.
I don’t agree either. It just doesn’t really make sense to me. People spend more money on supplements for a monthly subscription of supplements. I remember I was in a subscription program and I’ve got supplements taking up 2 or 3 shelves in my pantry. I disagree with that, and I think that people will pay for it if they get the result.
That’s the beautiful thing about the product. The results are there. It’s not a use this for three weeks and you’ll feel better. It’s use it today, you’ll feel better tomorrow, and that’s what most of our athletes give feedback on. I don’t think Mark conceptually understood. Recovery is a treatment. They get recovery treatments post-training. His Mavericks basketball players, they’re one of our better customers.
That’s why I thought he would understand most.
So did we but he didn’t, and Mark, if you watch, he’s always skeptical about modalities, things like this, research-based stuff. He’s got a lot of skepticism about it. I just don’t think he gravitated to the thought and really understood the technology.
Yeah. Okay. Other people do.
Thank you, Mark.
I see a real market for it. I see it, the real market being direct to consumer. As people age, if they’ve been active in their life.
Seven people turning 65 every minute in this country.
There you go.
If Damon knows that, then he should have stayed in the game.
I think it’s a great product, and I think there’s a lot of promise. Rashawn and I were talking. He agrees with me. We have an offer together.
Actually going to pull a card from your deck here. I never thought I would do it, man. Every time I hear your deal, “Don’t go there.” We’ll offer you the $500,000 for 5%. We want a $1.50 royalty until we got our money back, and then $0.50 in perpetuity thereafter. We will make sure you guys take this to the next level.
You are wise, grasshopper.
Yes.
All right, you got an offer. $500,000 for 5%, $1.50 until they get their money back and $0.50 to perpetuity. What did you have the most heartburn over?
Giving them money on the back end and having anything in perpetuity just based on our model. When my partner and I went into this, I was the science guy. My CMO, Lauren, is married to my CFO. When we went into this as a strategy, she was negotiating on the business, and I was just strictly talking about the science. I let Lauren handle this, and she did an amazing job with her response.
Yes, I agree.
In terms of the royalty offer, first of all, we appreciate your offer.
Yes, thank you.
That’s good to do. A lot of guests don’t say, “Thank you, we appreciate your offer.” They just go into negotiating. You got to do a thank you and an acceptance.
That was something Lauren and I really practiced is making sure that you thanked every entrepreneur there as they exited. You have to be very cordial and you really have to control that room, and they’re coming at you and you have to be polite, and they’re talking over each other. You really have to manage the room, and you have to be very super respectful of these amazing people and thank them. I do agree with you, that was one of the big things that we wanted to show for ourselves is that we respected their time and their offers, etc.
Make sure to thank every entrepreneur you are pitching your brand to. Share on XYou’ve got to know the room, read the room, and thank the room and be super polite. You guys did that very well because you never know if they’re going to have you back on.
Correct. You never know.
Plus, it’s just the right thing to do, and it’s common sense, but common sense is not so common anymore.
You are right, you are correct.
We are already investing so much back into the business. We were not looking to add a royalty to the business right now because we want to be able to continue to invest and grow in the business.
What’s your counter?
Good job, Lauren. She did a great job on that.
We would counter the 2.5% to 3.5% for the $500,000.
Come on.
Is it the perpetuity royalty you have a problem with?
That always is an issue.
$0.50 is not going to ruin your business.
You know what, and entrepreneurs out there, it is an issue when you go to sell your company. You have to look long-term, not short-term.
This is really where Damon came in clutch for us because what he’s going to say next. We didn’t have to answer the question anymore. What Damon said and what Mark said really helped us.
I just want the entrepreneurs to know that if you do something in perpetuity, it does hurt the sale of your company.
$0.50 could ruin your business.
They made a counter, guys.
I love that because he’s so right.
We didn’t have to answer to it. It answered itself. We were very fortunate with that banter right there.
It’s like I said earlier, Anthony, it’s always better when somebody else sells for you, and it’s always better when somebody else defends you.
For sure.
What are you going to do?
First, I think your last round with the athletes was mispriced. If the issue is the actual royalty, we can talk about that. Our concern is that we never get our money back. You guys never sell this business.
You’re a VC, Rashawn. You plan on exits and selling the company.
Can I talk about the valuation? Prior to coming in here, we did have informal conversations with PE and venture. For this category, they were saying 4 to 6 times rev is a good place to be.
Lauren, I’ll say it for him. We don’t care. We’re Sharks.
Okay, so I want entrepreneurs not to get confused by this. Most businesses do not sell for multiple of revenue. They don’t. In order to sell for multiple of revenue, you’re typically a saas company or you’ve got a tremendous amount of patents and IP proprietary assets and you have residual income, you have a subscription model. There’s a lot of things that come into play when you’re trying to get a multiple of revenue. Most businesses are multiple of EBITDA.
At the end of the day, whether you’re multiple of revenue or multiple of EBITDA, it’s the buyers who decide what the business is worth to them, to their company, what synergies, what catapult their current business to the next level. It’s not always a multiple of revenue, and that’s what all buyers think, and that’s incorrect.
You have to have a lot of proprietary assets. AI, software, residual income, etc., coming in to get a multiple of revenue. Venture capital and private equity is not always right. I’m not saying I’m always right. I’m basing my opinions on 26 years of experience being in the field closing hundreds upon hundreds of deals.
We’re Sharks.
We did come in below that because you are Sharks. I don’t want to negotiate against ourselves. We counter.
It’s only one thing that you’re not anticipating. You’re going to take millions of dollars and spend it on marketing, and you’re going to get a million dollars of marketing from us for free.
I have a separate marketing agency that I would charge them an average of $3 million a year for this.
$3 million a year is a lot for marketing, right, Anthony?
That’s not a real number. We would definitely be out of business if we were spending that much on marketing.
I think most companies would be, Anthony. You’re right. They’re talking again. Somebody’s talking. You all are talking. A lot of side whispering on this episode.
We’ll counter the offer. If we remove the royalty, we need our 5%. No royalty, 5% for $500,000. That’s our final offer.
Pretty clean deal.
That should be easy.
Thank you, guys. Thank you for your offer. We appreciate that.
Thank you. That is clean. Coming in here, we obviously did have our top level point we could go to and we felt that was 4%.
That would be unfortunate.
You’re going to let 100 basis points and you’re going to walk out without a deal?
1% you’re going to quit a deal?
That’s crazy.
Any investor in a country will tell you don’t be dilution-sensitive, be success-sensitive. Right now, that 100 basis points could cost you guys hundreds of millions of dollars.
I couldn’t agree more. I really couldn’t. I don’t want you to say too much, Anthony, because I don’t want you giving anything away, but I couldn’t agree more with that. I do agree with that 1,000%. A lot of sellers do that when they go to sell their business or when they go to raise capital. They just don’t want to give up a little bit of money when they could grow exponentially and be worth millions. Sometimes, entrepreneurs out there, I’m not talking to Anthony, I’m talking to everybody else, sometimes it’s better to have a small piece of the pie than a bigger piece of a smaller pie. Small piece of a much bigger pie versus a big piece of a much smaller pie. Makes sense?
Absolutely.
I see hundreds, if not thousands of pitches. It’s impossible to get what you want, and you’re going to walk out for 100 basis points, 1%? You’re nuts. You’re absolutely nuts if you do that.
What do you guys want to do?
Can we take a moment? Thank you.
I’m surprised when you huddle, nobody can hear you. The microphone is still on.
It’s interesting. They might turn them down, honestly.
They have to turn them down because otherwise, they’ll hear what you’re saying. Same thing when the Sharks huddle.
We had a game plan when we came in, and like Tyson said, everybody’s got a plan until somebody punches you in the face. We appreciate the punch, and we would love to take the deal with you. \
Now, I will tell you something. There is no better closing line than that right there. I love that line. I think you and Lauren did a fantastic job, both of you, but I just love that line. Mike Tyson.
It just came to me quickly. I don’t know. It’s a lot of pressure being on the in the tank. Again, we’re pitching for an hour and a half, hour and 15 minutes. You’re exhausted by the end. It’s very intense. I would say the most intense part of it is the lines you have to remember, which are the initial pitch. It’s a banter, and like I said, it’s managing the Sharks, and they’re coming at you and talking over each other and all that.
It’s a tense situation there. It’s an hour and 15 minutes of negotiating. You’re very exhausted at the end. The Sharks are talking over themselves, you’re managing them and all that. Lauren and I huddled up, and even though we went lower than what we wanted, we knew the value of working with a Rashawn and Lori would outpace the potential of what we gave up in additional percentage. We agreed with them in regards to that. You’re doing this on the fly and you’re negotiating but at the end of the day, we agreed to do it, and we were happy to walk out of there with a deal.
That’s awesome, and I do think y’all did a great job. I’m glad you did that you said yes. You guys kept your composure, and that’s what a lot of guests need to learn. You’ve got to remain control, never let go of the control because if you let go of the control, you’re toast. You’re done.
I’ll give mad props to my partners and our community. We did a lot of role-plays before this. It’s an intense, you’re on Shark Tank. You’re walking down, it’s real, your heartbeat is all over the place, and just learning those four pitch lines was probably one of the hardest things I’ve ever done. I can freestyle and talk about the product and all that but that was an intense time and keeping your composure’s a big thing, but it really is a lot of practice on the front end. We pitched back and forth to each other many days, and we spent a lot of time preparing to be on the on the tank. I think a lot of entrepreneurs don’t do that.
What Happened To Firefly Beyond Shark Tank
I think the role-playing is crucial. The role-playing is crucial beforehand. It’s all the preparation work that goes into really maintaining that control because you can get in there and forget everything that you were going to say. Let’s talk let’s talk about beyond the tank. You get the deal with Rashawn and Lori, you get the deal, you’re excited, you’re happy, then what happens?
You really negotiate with them, and they get to know you and you get to know them, and they get to do a deeper dive into the business and really understand the market share, where we’re at inside the business. There were negotiations back and forth and that probably went along about a four-month period.
At the end of negotiations there was not a deal that was done on the end. That was really the Sharks’ decision. We negotiated. They just want a good negotiation. They don’t want people trying to be on Shark Tank just to be on Shark Tank. They want you to truly be negotiating in good faith, and we did that with them.
What do you feel went South? Why do you feel that you didn’t get the deal? Not so much it went South, but why do you feel you didn’t get the deal?
Again, you’re not really supposed to talk about the negotiation, but in general, I think the deal killer was we don’t own our IP. We’re a licensed distributor. We’ve learned a lot of things after Shark Tank. We are in the process now of negotiating to maybe try to buy the IP from the company that we sell for and get a little bit more foundation in our business because it is hard to sell a company when you are a distributor for another manufacturer. It taught us a lot in how to value our company and who might be the ultimate purchaser of it, which actually might be the original company that founded Firefly. It might be the company that ends up ultimately buying us because they probably are our best customer and easiest to negotiate with.
Let’s talk about this real quick. For my entrepreneurs, they don’t have the IP, they don’t own the IP. That’s not the best favorable position to be in because it really hurts the sale of your company. However, there’s lots of distributors out there. Some of you readers are a distributor, I know that. We had a distributor that we were selling for about $40 million, $50 million somewhere around there. The deal fell apart because when they went to the manufacturer, the buyer was a private equity buyer. The private equity buyer wanted to buy multiple locations, not just the one that we were selling.
The multiple buyer was a private equity group, and said, “To make it worth our while, we need to buy 5 or 6 of these.” They went in to talk to the manufacturer without the sellers being present, guns a-blazing. They were very aggressive, overly aggressive, and were talking about buying multiple locations. The manufacturer backed off and said, “Wait, we’re not willing to do that,” because you got to understand, what is the intent of the manufacturer?
What is the intent of the company that hosts the IP? Their intent in this deal was to buy locations themselves, just like Anthony said, that their proprietary holder, the company that started the IP, might be the best buyer for them. They wanted to start buying multiple locations, but they weren’t quite ready. They didn’t want anybody to come in and have too much control so the deal fell apart. If you don’t own the IP, you could still sell your company, maybe not for maximum value, but you got to make sure you understand the intention of the company that does hold the IP.
As we build Firefly, we know there’s other companies out there that would want to buy us, companies that have kicked the tires. We obviously would bring in the manufacturer to all those negotiations very early in the discussion to make sure that we’re all headed in the right direction, the same direction. We know if we sell to another company that’s not the manufacturer, that we have to involve them into these early discussions to make sure that they all are headed in the right and same direction and know where that manufacturer is headed as well. As I said, they’re predominantly a medical device company, so this over-the-counter consumer business. It is not really their forte. They would want a good partner regardless. If in fact we decided to sell the business.
Episode Wrap-up And Closing Words
You want to hire Michelle Seiler Tucker and read Exit Rich. All right, Anthony, you’ve been a wealth of information. Do you have any golden nuggets, quick golden nuggets that you can leave for our audience?
Enjoy the ride. I always tell myself we’re not building this business to sell because if you’re building something to sell, I think nobody wants to buy it. I think you have to build a business to be profitable and you have to enjoy it and you have to bring the right people into it, and then ultimately, if somebody wants to buy it because it’s valuable and there’s it’s the right time and right place, that’s great. If you’re building something just so somebody can sell it, nobody’s going to want to buy it. My theory of building business is you got to build it for yourself.
If you are building something to sell, nobody would want to buy it. You have to build a business to be profitable and bring the right people into it. Share on XAnthony, I really like you, but that is incorrect information. I’ve been doing this for 26 years. If you don’t build a sustainable, scalable business that can run without you on the 6 Ps, which is the right people in place, management team, the business operate without you, without product, diversified products, they’re on the way up, not the way out, without your processes in place, without all of your proprietary assets built like patents, transferable contracts, trademarks, etc., and diversified clients and a true profitable company, you’re not going to wake up one day and find a buyer. That never happens.
According to Steve Forbes and Exit Rich, 85% of businesses will never sell. Eight out of ten businesses will never sell. The reason 8 out of 10 businesses never sell, Anthony, is because nobody thinks about selling until they wake up and a catastrophic event has happened like COVID or a health issue or divorce, partner dispute, etc.
I say what Stephen Covey says. Start it with the end in mind, build with the end in mind because then, Anthony, when somebody walks up one day, they’re going to say, “Absolutely I want to buy this company. You have all the 6 Ps in place. You have a solid foundation.” What happens is people wake up and say, “I want to sell my business for $20 million,” and they don’t have a solid foundation and the business is dependent upon the owner.
No, I agree with all the things that you said and we are doing all those things that you said, but my mentality is I don’t wake up every day wondering when I’m going to exit. I build a business.
No, but you wake up every day building a sellable business.
Yes, I do that. We absolutely do that and have done that and have hit most of the principles that you discussed already, but I don’t wake up every day thinking, “I’ve got to get out of this business.” It doesn’t have a for sale sign in front of it like when you’re selling a house but it’s built to be sold, for sure.
Bingo. He’s building a sustainable, scalable business, so when he’s ready, it is sellable. I agree with that point, Anthony. You don’t want to wake up every day saying, “I need to sell this business,” because if you say that, then you got a pretty bad business because your mindset is not in the right place and you’re not building for growth, you’re building for failure.
You’ve seen tons of businesses that are burning cash and they’re not profitable and they’re trying to get a multiplier on revenue and all this stuff and they’re not really building a sustainable business. We’re building a sustainable business that could live without me, but at some point in time, if somebody knocked on the door and said, “I want to buy this business,” it would be a really good business to buy.
That knock may never come. What you want to do is build a scalable, sustainable, sellable business so that when you decide to go to market, we create a bidding war, host a silent auction, and that’s where you get the highest value. It’s not even based upon the appraised price anymore. It’s based upon the multiple buyers and what the value means to them. That’s what creates maximum value so people can exit rich. Okay. We agree.
We agree. Indirectly, we agree. We’re coming to the same point. It’s been great. It’s been so nice to meet you, and thank you for spending the time talking about us and our journey and it’s been great.
Thank you, Anthony, for being on the show, and thank all of you for tuning in to another episode with another fabulous Shark Tank guest. I know there was a lot of content, there was a lot of golden nuggets here. A lot of value that was presented, especially with Anthony and Lauren on the show. Also, he didn’t get the deal. Anthony and Lauren didn’t get the deal.
Guess what? They’re still going. They didn’t give- they didn’t think of that as failure, they used that as ammunition to continue to build their business. They’re probably in a better place. Share this episode with absolutely everybody your network equals your net worth. Get it out there, and make sure you subscribe to the show. We’ll see you next time.
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