Kevin O’Leary didn't want to negotiate with this 'Shark Tank' contestant — but he still got a deal
Kevin O’Leary may be one of the most ruthless investors on "Shark Tank," but that doesn't mean he is stubborn enough not to spot a good deal. This was proved right when Mr. Wonderful refused to negotiate even a bit with an entrepreneur selling a healthier version of a popular Mexican food item, but in the end, agreed to a deal that the founder suggested. The other sharks also convinced him that it was a good deal to take.
The entrepreneur, named Hector Saldivar, sought $500,000 for a 5% stake in his company, Tia Lupita, which produces hot sauce, salsa, and chips. Saldivar named the company after his mother, who had passed down her recipe for the sauces to her son. After these recipes became a hit in his personal circle, the entrepreneur decided to create a brand out of them and also ensured that the products were healthy.
Saldivar claimed that his products did not contain any binders, preservatives, gluten, or added sugars. He asked for a massive valuation but had impressive sales figures. The company had earned $900,000 in its first year of operation, $1.5 million in the second, and it was on course to earn $4 million in the year of taping. However, it had only become profitable in the month prior to his appearance on the show.
Kevin O’Leary had been looking for something just like this for Chef Wonderful and believed that he could turn it into something big. However, the valuation was too high for him to digest, and 5% was never going to be enough for his appetite. By this point, all of the other sharks were out, as they did not believe they’d be right to take this company forward.
So, Mr. Wonderful made the only offer from an advantageous position. He offered the $500,000 as a loan at 12.5% interest for 36 months in exchange for 10% equity. Saldivar did not have a problem with the structure of the deal. However, he was reluctant to give up so much equity. He asked if the investor had some wiggle room and was hit with a hard no. “Here’s what I’m also thinking,” he said.
“You’re gonna keep raising money, I’m gonna keep getting diluted. I mean, I’ve seen this movie before, my friend. If I start at 5%, I’ll have less than 1% by the time you’re finished getting to $50 million (in revenue),” he said, before asking for a 7.5% equity, but Mr. Wonderful immediately refused. The other sharks then suggested that O’Leary’s 5% be non-dilutable.
This was a good solution, and Saldivar agreed to counter with that. This was a much more attractive offer. O’Leary thought about it for a while as the rest of the sharks said that it was a good deal for him. Those terms were agreeable, and a deal was struck.
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