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  • I'm Yen. - And I'm Peter.

  • Peter: We're brothers from Austin, Texas.

  • Yen: And we started a sushi revolution, "How Do You Roll?"

  • - Great combination! - You got it coming right up!

  • I'm the CEO of the company. I deal with all the business stuff.

  • And I'm the COO. I'm on the creative side and I came up with the menu.

  • Everything good? Yeah?

  • Yen: We both grew up in the restaurant business.

  • Our parents had several Chinese restaurants so at the tender age of 8 and 9,

  • we both started working in our parent's job.

  • The restaurant business is in our blood, it's in our veins. It's just what we know.

  • What can I get for you, sir? - I love to have that Slammin' Salmon.

  • Yen: Slammin' Salmon, you got it.

  • Yen: Together we create a sushi experience that's never been done before.

  • Can you add cucumber to that? Artichoke? - Can I get that with crab?

  • Yen: We've allowed the customer to become the chef.

  • Our customers get to choose everything from what type of wrap they want to use,

  • to the rice they want to use.

  • The veggies, proteins, the sauces and toppings--

  • Peter: And nobody is doing what we're doing today.

  • Getting an investment from the sharks is critical at this stage of where we are as a company.

  • I believe our business model is going to be the next great thing in ethnic food.

  • And with the shark's investment we'll be able to explode this concept.

  • ♪ [dramatic music]

  • Hello Sharks. My name is Yen Young. - And I'm his younger brother, Peter Young.

  • Our business is How Do You Roll?

  • We are seeking one million dollars for 12% of our company.

  • How Do You Roll is a fast, casual restaurant where you get sushi rolls made to order

  • just the way you like 'em.

  • Before we came onto the scene, if you wanted sushi, you really only had two choices.

  • Option one was to go to a fancy sit down sushi restaurant where you had to dress right, smell right.

  • Gotta like techno music [laughter]. Those can be fun occasionally if you want to spend

  • more money than you actually have trying to impress people you really don't like.

  • So that leaves you with your second option, you go down to the local grocery store

  • you get a pre-made roll made fresh "daily," you just don't know which day of the week it was actually made.

  • The quality is just subpar.

  • And because of Yen's horrible experience, we started the sushi revolution three years ago with just one location in Austin, Texas.

  • We've taken the same food quality you get at a high end restaurant and pair it up

  • with the convenience of the grocery store.

  • Unpretentious, good food in a fast, casual environment.

  • Peter: So we want you to experience this for yourself, so Barbara,

  • we would actually like to invite you up so that you can create your own sushi roll.

  • Okay Barbara, whenever you go to How Do You Roll,

  • the first thing you want to do is pick out what kind of wrap you like.

  • We have seaweed wrap and we have soy wrap.

  • Barbara: I'll take the soy wrap. Peter: Good choice.

  • And what you get to do is pick out your protein. We have crab stick, chicken, salmon, tuna.

  • Barbara: I'll take the tuna. Peter: We also have proprietary sauces.

  • Do you like spicy? Sweet? Barbara: A little spicy.

  • Peter: Our best seller is the spicy mayo and I'll go ahead and put that on there.

  • You can have a seat and I'll bring that right out to you.

  • Sharks, do not fear. We have food for you, too.

  • You're going to get to sample our other side of the menu which is our featured rolls.

  • Male: He's making it right there. He's making it right now.

  • Thank you, Yen.

  • Yen: Damon. Damon: Thank you.

  • Mmm. Thank you, sir. Good sushi. Fantastic.

  • Yen: Thank you, thank you. Barbara: Hurry, hurry, hurry.

  • Yen: Barbara, this is your custom roll. Barbara: How nice is this.

  • Mmm. - Very good. This is very good.

  • So here's our question, who wants to roll with us?

  • How did you get started in this?

  • It's funny--we both grew up in the restaurant business.

  • I actually said, "I'm never going to be in the restaurant business again, I'm never going to work with family"

  • because I had to work with my parents growing up. [laughter]

  • Fourteen years later, here I am standing next to my brother.

  • Tell us about the economics of the business.

  • Absolutely. We started franchising 2 and 1/2 years ago.

  • We have sold 40 total. We've gotten 15 of them open, 2 of them are corporate stores.

  • Our first two stores are our own. We opened the first two.

  • Since then we've been focusing on franchising.

  • And the franchisees--how long has the longest one been open?

  • One has been open for right at about a year.

  • And how are they doing? What are the economics of their business?

  • So far so good, knock on wood. - Are they profitable?

  • Yen: They are. - What's the average bill in the sit down restaurant?

  • Roughly it's about $10 to $12. - Sushi is good. Let's talk money.

  • You're offering me 12% of the corporate entity-- Yen: Correct.

  • That owns all the franchise flows for 1 million dollars. - That's correct.

  • So what is this year's cash flow going to look like?

  • Just on royalties, it's 250 thousand a year. - Wow.

  • What are your sales in the corporate stores?

  • One is running $600,000 and the other running $400,000.

  • Barbara: I would like to ask--I'm going to buy a franchise. Tell me what I have to pay you.

  • Yen: Okay so cost of the franchise, including the $20,000 in franchise fee,

  • the building out of the store, buying the equipment: $270,000-$300,000 all in.

  • Now they're in business but what happens after that? You get a percentage of what they set?

  • Yen: That is correct. - What is your royalty rate?

  • Yen: That's 7%. - What other compliance systems do you have to make sure you are getting paid?

  • We suck it right out of their checking account every week.

  • So you mean, in other words, they have to set up a corporate account. - That is correct.

  • Guys, I like the idea and the concept, but that's a brutally competitive area.

  • I don't want to be in the sushi business so I'm out.

  • I'm looking at it from a different perspective. I believe it's very well-managed.

  • I think your presentation is excellent. You have the right combinations of chef guy with finance guy--that's perfect.

  • The valuation is rich.

  • It's probably a little bit high. We have had a letter of intent sent to us to buy 75% of the company

  • and that valuation came in at about 6.6. - Ah! Are you gonna do that deal?

  • I don't think so. - I don't think you should.

  • The reason why is because number 1, I don't want to lose that much of the company.

  • Really, honestly with the opening of 4 or 5 more stores, our royalties will get us to profitability.

  • Where's your geography right now? Are they all in Texas?

  • No, they are in California, Marina del Rey. We have one in Phoenix, Arizona. Tucson, Arizona.

  • I gotta tell you man, you started a business a few years ago and someone's offering you 6.6 million in cash.

  • You'd be a multimillionaire overnight and you are just talking about turning it down like that.

  • Power to you because I gotta tell you, first time someone offered me a million bucks, it took me weeks to say no.

  • I wanted to grab that check and run. [laughter]

  • The profit you make in food is in appetizers, liquor and or beverages, and desserts.

  • There is no money in this and you are selling fresh fish.

  • I think the margin is going to be too low--I'm out.

  • Okay.

  • Great presentation. More importantly, great food.

  • I can't help you with the operation. I don't understand this particular food model.

  • You are running a great, great business.

  • I'll bring all my buddies, we'll spend a lot of money-- -Thank you.

  • But we're not going to spend a million dollars to invest today.

  • I'm out.

  • You have 15 locations in 2 1/2 years. - That is correct.

  • Amazing. - Thank you.

  • I have recently gotten involved in two different food franchises

  • and I'm quickly learning how complicated it is so

  • I have great respect for where you came from and how far you got but I mistrust it.

  • I think your presentation was so buttoned up, for my liking, a little too buttoned up.

  • So I'm going to trust my gut on this, I'm out.

  • Okay.

  • I like your business, I like you guys. - Thank you.

  • So I'll make you an offer.

  • I'll give you 1 million dollars. - Whoa!

  • Wow. - But I want 22% of the business.

  • And there is one caveat. [dramatic music]

  • Narrator: Four sharks are out and Peter and Yen have an offer on the table.

  • I'll give you 1 million dollars.

  • Wow!

  • But I want 22% of the business. There is one caveat: I want a monthly distribution prorated to the owners.

  • In other words, the partners--obviously you are the majors--we get a check every month

  • from the free cash that is coming from the franchisees.

  • The percentage we can negotiate in the future.

  • That's the only request I have and you get 1 million dollars.

  • So you are giving them a value of 5 million dollars on the business?

  • Less than 5 million dollars and on top of that he's getting a check every month--

  • Guys, I bring a lot of value to the table here. I know this space, not sushi rolling,

  • but franchise and economics of investing in this.

  • I'll force some disciplines on you'll thank me four-five years from now.

  • Can you elaborate a little bit about what disciplines you might be alluding to?

  • [laughter]

  • All I'm saying is that the only covenant I'm putting in place is to make you more money monthly.

  • I'm going to sit down with you and negotiate what portion of the free class flow

  • that comes from the royalty stream goes into your pocket every month.

  • Listen to what he just said. He said now he's going to undervalue your valuation first.

  • On top of that he's taking cash out of the business upfront.

  • Mark didn't think of the structure.

  • He's taking the cash out with you.

  • Kevin, why would they have a firm offer for their business at 6.6 and in their wildest,

  • socky instilled nightmare take your 5 million?

  • It doesn't matter what you think, I couldn't care less. It's what they think that matters.

  • I made you an offer. It's very simple.

  • I'll be your partner. I'm willing to give you 1 million dollars for 22% of the company.

  • It's your vision--you still control it.

  • You don't have to give up control. I don't want control, I just want a return on my investment.

  • Is that too much to ask? I don't think so.

  • Are you willing to come down on your equity portion to 15%?

  • I would meet you in the middle.

  • Okay, so you'd do it at 20% roughly? - Yeah.

  • Are you not just curious as to how much he wants to take out of that business monthly?

  • He has to have some number in his head. - No I don't.

  • To leave that open ended? - You are actually getting the lion's share of what comes out.

  • That's true. I wasn't thinking about that. I was thinking even if we got crammed down with this offer

  • that we would still get some share of distribution. - Absolutely.

  • So can we have a standing offer to discuss? - Absolutely.

  • Thank you.

  • "Standing offer." - That's an aggressive valuation, Mr. O'Leary.

  • All you want to do is basically--

  • All he wants to do is protect his downside. - Exactly!

  • They're giving up their upside because they think they can get at least 15% return on their cash

  • because that's what their discount was and their discounted cash flow.

  • I don't need help on this one Mark, I figured this one out myself.

  • I'm not giving you help, I'm just saying.

  • The deal with these guys is I think they really need the cash.

  • Do you want to punt? - I think so.

  • You want to punt? - Yeah.

  • I think we have other opportunities out there.

  • Oh here we go.

  • [suspenseful music]

  • Before we answer we just have a quick question.

  • How are you going to help us with the real estate side which has become very problematic for us?

  • There is no easy answer to that.

  • Even when you have 400 locations, every new one is a paramount fight.

  • There is no question about it.

  • Those are individual negotiations, every single time.

  • Now you don't have a person doing your real estate right now, do you?

  • That is correct. I am doing it.

  • Yeah but you know, you can't afford one until you're passed 50 locations.

  • You just can't. You're gonna have to do it. - Okay, that's fair. Yeah.

  • You're still too small.

  • You're going to reduce your risk in some ways by growing a little slower, I think,

  • whether you take me on or not is a part.

  • If I were you I would take me on. [laughter]

  • Peter? What do you want to do?

  • Okay. If you feel like that's the right decision-- - We'll take your offer.

  • - Whoa! Wow!

  • Kevin, I even started to believe that crap.

  • Thank you. Looking forward to it. - Sounded like a great offer.

  • I look forward to working with you. - Thank you, guys.

  • Good job! - You made a deal with the devil.

  • Wow. That was amazing. - It was.

  • We took Kevin's deal of 1 million dollars because ultimately we felt like

  • the strategic alliance with Kevin was going to far outweigh the other dollars.

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