Two Sharks Team Up for Revolutionary Cat DNA Technology

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If we could talk to our beloved pets what could they tell us? Okay, maybe we are not there yet but new technology spewing in the Shark Tank from Episode 21 of Season 10 might help us learn a significant amount about our furry friends, specifically cats.

Former Groupon Russia CEO Anna Skaya made all cat owners’ ears perk up when her biotechnology company Basepaws presented their main product the CatKit. The CatKit is the first at-home DNA test for cats and provides owners with a comprehensive report of the cat’s ancestry along with any specific diseases they have. The kit comes with adhesive tape and a swab for the owner to extract hair and saliva samples of their cat. The kit is then supposed to be mailed back to Basepaws’ LA labs where the data is analyzed and the report is compiled to be sent in return to the owner. The CatKit even comes with a little cat toy so the cat can enjoy the process as well.

Skaya looked to obtain $250k in exchange for a 5% stake putting her company’s evaluation at $5 million. The Basepaws CEO let the cat out of the bag when she announced to the Sharks that the biotech company was fully built off only an initial investment of $350k. In regards to how Basepaws generates revenue, the company sells each CatKit for $95 while it costs them $25 to make and perform each test. Skaya expressed to the Sharks that Basepaws has already made $200k in revenue in the ten months it has been on the market and is on pace to make $400k by the end of this year. These sales come from marketing only through their website and their Instagram account which features cute Instagram cat videos and have worked well in promoting the company.

While the Basepaws CatKit is the first at-home DNA test for cats, Skaya conceded that two similar products have already hit the market for dogs which is a much larger market than cats. However, the Basepaws CEO excitedly expressed how her company uses unique, innovative technology that is much newer than these other tests which feature costly, archaic techniques. As a result, Basepaws looks to expand to the dog market within the next year with a much cheaper DNA kit than her competitors which she claims she can afford due to her company’s smarter technology. While she did not provide much specific information on the technology itself, Skaya did mention that it goes beyond looking at just genetic information to also factoring in nutrition as well.

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The Sharks looked ready to invest after Skaya’s pitch. Kevin O’Leary opened the bidding by offering the Basepaws CEO $250k for 8.3% stake and 1.7% in advisory shares. However, some of the other Sharks were not as enthusiastic about getting on board with Basepaws as Kevin was. Lori Greiner went out first on the basis that Basepaws had only sold 2,500 CatKits so far in the ten months which did not give her enough confidence to make an investment in the company. Daymond John followed Lori by going out because he thought Kevin’s offer was substantially more generous than he would have liked to offer. Mark Cuban also went out as he thought scaling would be difficult for Basepaws in the magnitude of performing additional tests and running the labs.

This left Robert Herjavec as the only remaining Shark in the tank with Kevin. Robert, who seemed excited about Basepaws from the beginning of the pitch, decided to offer Skaya $250k for a 10% stake after listening to some of the complaints from the other Sharks. Now with two offers on the table from two Sharks, Skaya suggested that the Sharks should go in together so that she can offer them equity closer to what they were looking for. Kevin and Robert did not agree on lowering the overall equity but did start pondering about an offer they can make that includes both of them. Finally, they proposed a deal with both Sharks on board for $250k for 10% where each of the two Sharks paid $125k for 5%. While disappointed in lowering her company’s evaluation by giving up too much equity, Skaya was still excited to accept the deal as she recognized the value in having the mentorship of two Sharks for the company.

Talking Points

The first talking point is how amazing it was for a biotechnology company like Basepaws to be completely built off an initial $350k investment alone. For many venture capitalists, biotech can be a risky and expensive investment; biotech companies often need a significant amount of capital just to support their process of research and development (R&D) before they are even able to finalize the product itself. After this process, a great deal of capital is additionally required to sustain the labs for their biotech product which, in this case, can involve running costly technology for each test. To show how expensive running this technology can be, it might help to consider that one of the most significant drivers of American health care spending comes from the overutilization of newer technology. With all of these costs in mind, it is easy to see why maybe some of the Sharks’ BS meters rang when Skaya claimed that Basepaws was completely built from a $350k investment. However, Skaya was able to handle all of the Sharks’ questions with concrete answers and has had a remarkable amount of experience building companies including one that previously was acquired by Groupon. Skaya’s impressive resume definitely gave the Sharks admiration rather than doubt in her ability to build Basepaws as a biotech company on solely $350k.

Another talking point is Basepaws’ future plans to expand its at-home DNA tests to more animals beyond just cats. Skaya mentions that the company’s plans at the moment are to expand to dogs within the next year and then eventually horses. She stated that these animals have been in large demand by potential consumers. As mentioned earlier, the dog market is much larger than the cat market. There are currently already two companies that do dog DNA tests but, with Basepaws’ revolutionary technology, Skaya appears confident that her company can make an at-home DNA test for dogs at half the price her competitors do it for. If this happens and the other companies cannot bring their costs down, then Basepaws can gain a great deal of success in the much larger dog market. This will lead to the question then if whether it is worth shifting to focus on the dog market rather than perfecting the CatKits that have made Basepaws the leader in at-home DNA tests for cats already.

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Also, note that cats, dogs, and horses are all animals that are commonly bred on a large scale. As mentioned by Skaya, Basepaws already works with international breeders who can learn a significant amount about their cats from the CatKits before breeding and distributing them. Like cars, Skaya stated during her Shark Tank pitch that CatKits are essentially “like Carfax” but for cats where these breeders can learn a significant amount about their genetics and ancestry which is critical for breeding. When Basepaws eventually makes DNA kits for dogs and horses, they will have an even greater venture to explore in international breeding as these products will be highly coveted by these breeders.

One more interesting talking point is the potential dangers with providing inaccurate health/DNA information that comes with many biotechnology companies. Because Basepaws’ CatKits provide disease and health information, any inaccuracy on this end may impact the cat’s health and lead to legal trouble for Basepaws. However, as long as Basepaws has a precautionary warning that their health reports may not always be exactly accurate and that the owner should proceed with caution, then that should deflect the liability of the cat’s health from the company to the owner instead. But, if Basepaws’ technology turns out to be extremely accurate then this can propose another venture for the company: licensing its technology to work with veterinarians and animal hospitals. This venture would allow Basepaws to offer its technology and results to animal hospitals so they can provide comprehensive health reports of their patients. As a result, Basepaws can potentially gain larger profits from this venture along with spreading its name as a brand to pet owners and veterinarians everywhere. This can also lead to consumers seeing Basepaws as a noble, health-preserving company rather than just a cute way to learn more about their pets.

A final talking point is whether people actually care enough to buy the at-home DNA tests for their pets. After all, to many owners the $95 price tag for the CatKit may not be worth finding out about the ancestry of their cats. However, because these tests go beyond and report diseases and the health quality of the cats, many owners should be willing to pay this expense to ensure their additional, furry family member is healthy. Some may consider just taking their pet to a veterinarian and having these experts perform blood and DNA tests although these prices may end up being much greater than the $95 price tag of the CatKit. Ultimately, this decision may come down to how risk-averse the owners are for their pets. During her Shark Tank pitch, Skaya stated that Basepaws and its products are important because “the more you know about your pet the longer you will have to love them.” This may end up tugging on the heart strings of this type of pet owners and work as an ultimate selling point to them.

Overall, It will be exciting to see how Basepaws takes advantage of Kevin and Robert’s expertise and further its work as a biotech company.