SilkRoll: A Harsh Lesson on Pitching
Janet Wu and Erin Wold came together at a 4th of July barbeque where they decided to collaborate on SilkRoll, a digital clothing exchange platform for women. SilkRoll’s goal is to provide a platform that allows you to trade in lightly used women’s clothing for points which can then be used to purchase another item on the site. This would alleviate the masses of clothing that goes to waste creating a system of reuse that is environmentally friendly. The idea was promising; however, the pitch lacked in conviction.
Janet explained that the average millennial wears a piece of clothing only thrice and when they attempt to resell it, they only receive a fraction of what they originally paid for the item. SilkRoll aims to encourage reuse and trade as users are offered points for clothing items they send in. Simply package your items and send it to SilkRoll and after verification you will receive points equivalent to the market dollar amount of the item. These points can then be used to purchase other clothing items listed on the platform by users.
Everything was going according to plan until the duo stated they were seeking $250,000 for 3% of their business which placed them at a whopping valuation of 8.3 million dollars. When asked how they verify the prices of the items sent in which would later be converted to points, a string of buzzwords like “smart database”, “algorithms” and “supply and demand dynamics” were thrown around. Mark Cuban was unimpressed and responded by saying, “so you over-complicated a simple business?” Barbara inquired what is done with items that are stained or torn; the SilkRoll team conveyed that users actually get points deducted for sending in low quality items while the items are donated to charity.
Fundamentally, the golden questions from the Sharks always stem from how the business makes money and sales numbers. This is where the pitch went further downhill as Janet and Erin lacked clarity when explaining their model. To put it simply, whenever a user trades points for an item, they are charged with a 5% fee on the transaction. Hence, trading 100 points for a blouse will require you to pay $5 in addition. This made sense, until Janet added that their margins were 68% without further clarification on where that 68% figure is derived from. This perplexed the Sharks. Another source of revenue was introduced when Janet explained that users can buy points if they are short for an item. Points are sold in bundles at $0.50/point, $0.33/point and $0.25/point but there was no mention of how many points come with each price.
Janet then urged the Sharks to not value them as a traditional business as they are a “very special business”. The final nail in the coffin for SilkRoll was when they revealed they had generated only $35,000 in revenue since starting last year. Cuban sarcastically commented that they indeed are “a very special business”.
SilkRoll rolled out of the Shark Tank without an offer in hand but valuable lessons can be learned by their team and bidding entrepreneurs on pitching:
Select a name that is not confusing or unrelated to your business
Avoid using buzzwords like artificial intelligence or machine learning. If you do, provide a demonstration on how the technology is implemented
Provide a clear revenue model with concise figures
If you are lacking revenue, focus on scale. Tech companies like Uber are still cash flow negative but have demonstrated tremendous growth that keeps investors excited
Produce a reasonable and calculated valuation, especially at the seed stage