Lili Yeo, founder of organic infant apparel company Goumi, appeared on a recent episode of Shark Tank and landed a million-dollar line of credit from Kevin O'Leary. Here's how she did it, and the lessons she learned along the way.
The concept for Goumi came about when Yeo was a new mom. A friend came to visit and noticed the mittens Yeo had fastened to her baby's hands with rubber bands. They looked awful but since newborns have poor motor control, mittens and booties are needed to keep them from scratching themselves on their legs and faces. Without rubber bands to hold them in place, though, those mittens and booties are liable to come off as babies squirm. The two discussed designs for mittens and booties that looked good and stayed put. Yeo realized this was a product every new parent would want--especially if, as befits a Portland, Oregon-based entrepreneur, she made them from organic and sustainable cotton and bamboo.
Goumi was profitable from year one. By year eight, the company was on track to do about $2.5 million in sales, and was about to sell its millionth item. That's when Shark Tank did a casting call in Portland. The producers contacted a VC that had invested in the company and the VC suggested several of its portfolio companies, including Goumi.
How did Goumi get from the casting call to an actual appearance on the show? "It helped that we had $5.2 million in lifetime sales and we were in all the major retailers. We were not just another baby apparel company," Yeo says. Also, her upbeat energy helped a lot. "The people from the show said over and over to us that they needed positivity, that was a really key element. It's television so you need to be somewhat entertaining."
Goumi's sales had more than doubled since Yeo raised her last round of funding with a valuation of $5 million in 2018. And, she says, 4x sales is a standard valuation in her industry. All that seemed to point to a valuation of around $10 million, she says. Knowing she'd need to leave some negotiation room, she asked the sharks for $1 million for an 8 percent stake in the company, a valuation of $12.5 million.
But all the Sharks said that was way too high. Daymond John offered $1 million for a 30 percent stake in the company, but Yeo felt accepting that deal would be unfair to her existing investors as it valued the company at only $3.33 million. So she accepted a competing offer from Kevin O'Leary -- a $1 million line of credit at 9 percent interest for a 10 percent stake in Goumi.
Sharks aren't like other investors.
Yeo acknowledges that she could likely have gotten a line of credit on similar terms from a bank or other investor without giving up any equity. "But the difference between a normal investor or bank and a Shark is apples and oranges," she says. "What they bring to the table is a different level of network and connections and media, which can bring a startup to a whole different level and scale much faster."
That's already happening. Eight months after the episode was filmed and just a few weeks after it aired, Goumi is launching a new line of baby bedding. "We've been dreaming of this next phase," Yeo says.
Asked for her advice to other founders, she says, "So many of us think too small. We are our own biggest disqualifiers." In fact, she came very close to disqualifying herself. She'd been a Shark Tank fan for years and sometimes thought about applying to be on the show but always came up with a reason not to bother trying. "We're too far along, we're not compelling enough, these are small baby accessories so our set wouldn't be so big," she says. "It's amazing how natural these disqualifiers feel."
Yeo says she might have never gone on Shark Tank if it hadn't been for the VC recommending her to the show's producers. But the experience has changed her outlook. "I'm not going to listen to my inner disqualifiers anymore," she says. "If you've already disqualified yourself, the answer is going to be no. But if you just try, there may be a yes."