MG $491$: Shark Tank Assignment

Background

Most business professionals have heard of the hit TV Show Shark Tank. Entrepreneurs attempt to gain an investment from a panel of investors in hopes that the advice, funding, and national exposure will help catapult their business to the next level.

In this case, you are put into the role of the business owner. You will need to evaluate your business$$s growth prospects and determine the amount of funding that is likely to be needed, as well as the appropriate value of the business.

Your Company

You and your partners operate a $4-$year$-$old consumer products company that has become very popular in Central Illinois. You have achieved significant growth but appear to have reached a point where your local market is saturated and you are ready to explore expansion opportunities, particularly by approaching large retailers. You are meeting with Shark Tank Investors and other venture capitalists to attempt to obtain the funding you will need for this expansion.

Key Financial Elements Considerations

$50\%$ of the company$$s net income each year is distributed to you and your business partners. This is the only compensation that you receive for your efforts. The remaining $50\%$ of the company$$s net income is retained by the business to fund various initiatives.

$$ An analysis of your expansion strategy leads you to believe that you can achieve a growth rate of $25\%$ next year.

$$ Financial Statements are attached for your review.

$$ You and your partners have evenly split the company into $50,000$ shares of stock.

$$ Last year, your company generated $$154,000$ of net income on $$1,000,000$ of sales.

$$ Companies in your industry typically trade at a multiple of $4$ to $6$ times annual earnings.

$$ It is well documented that the $$Shark Tank Effect$$ could result in a growth rate of $4060\%$ over the next year. This explosive growth would be the result of national television exposure. There is no guarantee however and asking for too much funding could prevent you from making a deal.

Questions:

Calculate the following items:

$$ The current value of the company.

$$ External Funds Needed $($at a $25\%$ growth rate$)$

$$ The value of the company if the $25\%$ growth rate is achieved.

$$ External Funds Needed if the $$Shark Tank Effect$$ occurs.

$$ The value of the company if the $$Shark Tank Effect$$ occurs.

Based on the information provided and your calculations, what offer should you make when you enter the Shark Tank? $($How much funding is requested and how much equity are you willing to give up$?)$ Support your position.EFN $=$