The $1 Billion Steal

Jamie Siminoff spent his last $10,000 on a prop front door and a cardboard cutout of 'Mr. Wonderful'...

Siminoff founded his company, Doorbot, on a simple premise – he wanted to make the doorbell of the future.

Instead of chiming when someone came to the door, the Doorbot would send an alert to your smartphone. A video camera would let you see who was there.

The company amassed an impressive $9 million in sales in just nine months. But it was running out of cash... fast. So in November 2013, a desperate Siminoff took his product to ABC's Shark Tank.

(In case you've never seen the show, it features a panel of investors who listen to pitches... and decide if they want a stake in the business.)

Siminoff hired a set builder to make a wooden front-door facade. He spent what was left on a cardboard cutout of "shark" Kevin O'Leary, known as "Mr. Wonderful." And then he headed to the Shark Tank set.

Folks, it takes a keen eye to spot an opportunity. And even the "experts" sometimes make the wrong bet.

Today, we'll take a closer look at one of the worst mistakes the sharks ever made... and how you can learn from their oversight.

Siminoff was looking to raise $700,000 at a $7 million valuation...

But one by one, the sharks rejected his proposal.

Internet security entrepreneur Robert Herjavec hated the Doorbot. He was worried a hacker could exploit the video feed... Plus, competitors might undermine the product's $199 price point.

Mark Cuban didn't see how this business could grow from $7 million to $70 million or higher. And two other sharks didn't understand why someone would choose Doorbot over an established security player like ADT.

That only left "Mr. Wonderful" himself, Kevin O'Leary... who didn't seem too amused by the cardboard cutout.

As the only shark left, O'Leary used all the leverage he had. He asked for 10% royalties on all products sold, plus 5% equity.

A deal like that would all but kill a small business trying to grow. So Siminoff left the shark tank without accepting an offer... and with no money left in Doorbot's coffers.

Thanks to Siminoff's appearance on prime-time TV, the company made about $3 million in sales over the next year...

And about a year after Shark Tank, Siminoff changed his product's name from Doorbot to Ring.

Billionaire investors like Shark Tank guest Richard Branson started lining up to give Siminoff money. By 2015, the company reached a $60 million valuation.

And in 2018, Big Tech giant Amazon (AMZN) scooped up Ring for an estimated $1 billion. O'Leary said it was "probably the biggest miss" in Shark Tank history.

Amazon has a history of making big purchases. In addition to Ring, it has scooped up well-known businesses like streaming platform Twitch and grocery chain Whole Foods.

Amazon targeted these businesses because they were complementary, meaning they could integrate into its existing network.

Even more important, these businesses are some of the best at what they do. When Amazon entered the streaming market by acquiring Twitch in 2014, it instantly became one of the largest companies in this space.

Jeff Bezos himself said that Amazon bought Ring for its market positioning as much as for its products. This strategy has helped Amazon become the $2 trillion company it is today.

While Amazon is undoubtedly a great business, it's much bulkier today than it was 20 years ago...

At its current size, it can't make many transformative acquisitions. However, investors can learn plenty from its success.

How a company grows is often as important as whether or not it's growing. Look for skilled acquirers with a proven track record of spotting a good deal... They tend to have an advantage over the rest of the market.

Mergers and acquisitions are a key part of the business world. And your portfolio can benefit from investing in those who do it best.

Regards,

Joel Litman
September 19, 2024