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Notehall

notehall-sharktankDJ Stephan and Sean Conway enter the Shark Tank with their business, Notehall, in episode 108. The pair met in college. Sean had been diagnosed with ADHD; his struggles with keeping up in class inspired Conway to partner with Stephan. Together, the pair designed a website that allows students to upload copies of their class notes. Students who are behind, struggling, or simply seeking more information on a class, are then able to download the notes. It’s a simple system that benefits both parties in the transaction.

The partners have had some success with their website, and want to take the concept world-wide, but they need an investment to do so. Will the Sharks rise to the bait?

Notehall Shark Tank Recap

The partners come in to the Shark Tank looking for a $90,000 investment, in return for 10% of their company. Stephan and Conway make a strong presentation.  Their pilot launches at Arizona State University and Kansas State University have been successful, gaining 40% of the student body’s participation in the first year. They’ve had nearly 6,000 customers, and made $30,000. The Sharks are clearly impressed with the presentation. Kevin O’Leary questions the probability of competition moving in on the market. Conway explains that their competitors focus on getting paying users, while Notehall has created an efficient way to gain content providers. Without solid content, any website with this business model is doomed to failure.

Robert Herjavec questions the valuation of the company, pointing out that a $90,000 investment in return for 10% of the company means that the company would be worth $900,000. With the high valuation, Kevin Harrington and Daymond John both decline to offer a deal. Kevin O’Leary wants to know how the boys have arrived at a high valuation, and how they intend to build profit. Stephan responds that they were able to gain 1,500 users in 6 weeks at KSU and ASU. The Sharks aren’t buying it.

Facing failure, Conway makes a bold promise; that the company will make 24 million dollars in four years’ time, and says he will bet 1/2 of the company on it. Kevin O’Leary is impressed with the boys’ “blind confidence”. He offers the $90,000 in return for 51% of the company. Barbara Corcoran jumps in and offers her own deal. She’s offering the $90,000, in return for 50%.

The boys make a counter offer. They will offer 15% of the company, with insurance: If, in two years, the company has not reached 1 million in sales, they will give their share to the investor. Corcoran modifies her offer to $90,000 for 25% of the company. Herjavec refers to his own internet experience, and ups the deal. He’s offering $115,000 for 35%. O’Leary offers to match Herjavec’s deal, calling Herjavec a “bozo”. The bidding war heats up as the Sharks nip at one another, trading insults freely. O’Leary and Herjavec team up against Barbara’s deal, offering $90,000 against 25% of the company.

After a brief consideration, the men accept Corcoran’s offer for $90,000 for 25%. The deal is done.

Notehall Shark Tank Update

Kevin O’Leary doesn’t take defeat well. He actually follows the young men off the stage, taking a moment to tell them they’ve made a mistake but that he wishes them well. He’s visibly upset at the loss, particularly stung to lose to Corcoran.

After the episode aired, the partners ultimately declined Corcoran’s offer, deciding instead to accept admittance in a Dream IT Ventures program. They were able to gain entrance to 54 universities, reaching approximately 750,000 students, before the company was acquired by Chegg.com, making the partners an impressive profit on their start up.

After the deal with Chegg was consummated, the producers asked Stephan and Conway for their royalty. This was the first deal that resulted in a royalty payment to the Shark Tank production company. It did not sit well with Mr. Stephan and Mr. Conway, but they still became millionaires.

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Comments

  1. Can you say more about the royalty payment to the shark tank production company? How does that work? Is that standard? How were they entitled to a royalty?

    • In the first three and a half seasons, the producers could take a royalty of up to 5% of the company, whether the business got a deal or not. When Notehall sold out, they paid the production company. They did away with the royalty clause, I believe retro-actively, late in season 4 when Mark Cuban said he wouldn’t continue on the show if the royalty clause remained in place. He believed the quality of businesses willing to appear on the show would decline. To Cuban’s credit, many companies that came on the show – including FiberFix and Rufflebutts (there are many more) – said they would NOT have taped if the clause was still in place.

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