Wednesday, January 22, 2014

InvisiPlug Unplugged

By: Pete Troshak
Twitter @Shak74
Website: www.Shak74.com

If you have ever looked at the white power strip your computer is plugged into and wished it wasn't so unsightly, Michael Barzman and Bryan O’Connell have an answer for you. The two entrepreneurs have created InvisiPlug, a line of fashionable power strips that come in three different faux woodgrain patterns designed to be less of an eyesore while meshing better with your wood furniture and hardwood flooring. The strips are priced at $14.99 for the standard model and $24.99 for the deluxe model. The standard item is priced slightly more than the standard white power strip, but is still reasonably competitive. Although the deluxe models were not prominent on the TV broadcast, they might be more in demand and useful due to the addition of two USB ports which can be used to charge most handheld electronics. As discussed by the Sharks, while InvisiPlug is patented, the patent would seemingly be hard to enforce given that their improvement to the original idea of the power strip is mainly aesthetic and not technological.

This pitch is interesting to recap because although Barzman and O’Connell delivered a smooth, competent pitch and made a deal with one of the Sharks, they failed to defend their valuation while leaving out a costly piece of information until late in their pitch.


The InvisiPlug entrepreneurs arrived in the Tank seeking $125,000 for 10% of their company, meaning that they value their company to be worth over a million dollars. They have been selling InvisiPlugs for less than seven weeks with only 1,500 units moved and a potential deal with Costco to show for it. Entrepreneurs peddling products with such a short history and low sales numbers generally get eaten alive by hungry Sharks, especially when their product isn't something really revolutionary or correctly valuated. Mark Cuban was the first to drop out, suggesting that they would be more successful making a similar but higher-end version of the same product, in order to stand out in a competitive market. Robert said that he didn't feel the aesthetic value was high enough and dropped out shortly after. Kevin, unsurprisingly, hammered Barzman and O’Connell for their valuation, even mocking them with an upturned pinkie by his mouth and a sneering (a Dr. Evil like reference) to them thinking their company was worth “one meeellion dollars.” Barbara thought the strips were a good product, but also questioned their valuation. So after offering to buy a whole bunch for her house, she dropped out as well.

This left Lori, the "Warm-Blooded Shark" as she prefers to be called, as the only Shark standing. She expressed her interest by asking some questions, and finally triggered the entrepreneurs to disclosed that their product was about to be featured in media queen, Oprah Winfrey’s, O Magazine. Lori then proceeded to offer a deal structured to take advantage of that exposure, which Mark called “a Kevin deal”- $125,000 for 10% of the company and $1 per unit sold until she recouped the $125,000, plus 50 cents per unit in perpetuity. The entrepreneurs countered with a similar but lesser offer to Lori, asking her to accept a royalty of 25 cents per unit until recoup, and a 5 or 10 cent royalty thereafter. Lori countered back with her final offer keeping the percentage the same, but lowering the perpetuity to 25 cents per unit. At this point, Robert came back in saying that their activity has shown to be “impressive.” He then made an offer for $125,000 for 25% of their company. They negotiated Robert down to 20% and he agreed to the deal if they accepted immediately. However, the inventors hedged, and Robert dropped out leaving them with only Lori to deal with. They attempted to negotiate with her, but she held firm to her last offer, which they finally accepted.

Waiting to tell the Sharks about the Oprah Magazine endorsement until after everyone but Lori had dropped out was a huge mistake. The exposure gained by having their product endorsed by a major media presence could have led to much more interest and competition among the Sharks. Giving the Sharks this info also might have led to less painful conversations regarding the valuation, which was the key point that lost most of the Sharks during the initial pitch. Even if the Sharks were concerned about the product having legs, they might have been more willing to invest knowing that they would be able to recoup their investment in the short term due to this endorsement. Barzman and O’Connell would probably have been better off with a deal more similar to Robert’s, which did not require the initial investment to be repaid and was more a partnership and long term deal, rather than Lori’s lower risk (for her) deal with royalties. Not disclosing that key piece of information till late in their pitch damaged the duo’s chances of cutting a better financial deal for themselves and cut down on their options.

Although InvisiPlug did walk away with a deal, their critical error cannot be overlooked. There are no guarantees that other Sharks would have been interested even with an early mention of the O Magazine endorsement. However, the fact that they neglected to bring it up early on certainly could have impacted the outcome of the deal, and could potentially cost them thousands if not millions in royalties over time. The lesson is obvious: before pitching to an investor, line up all the facts and be ready to bring them up, especially if they are positive and could only increase your chances of getting an investment.

2 comments:

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  2. I'm planning to get an invisible looking plug for my aquarium. I like that it will blend with the colors of my aquarium design since I will put it near my tank.

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