Funding can be make or break for a startup. And most businesses would jump at the chance for half a million dollars.
But when Sleeping Duck founders, Selvam Sinnappan and Winston Wijeyeratne, were offered $500,000 from Steve Baxter on Channel 10’s Shark Tank, they turned him down.
Mr Sinnappan and Mr Wijeyeratne -Sleeping Duck founders.
University friends, Mr Sinnappan and Mr Wijeyeratne founded Sleeping Duck in 2014. Born due to their own frustrations with the process of buying a mattress, Sleeping Duck’s intention was to shake up the mattress industry.
With a background in civil engineering (Sinnappan) and aerospace engineering (Wijeyeratne), the pair created a mattress with a unique combination of pocket springs, gel-infused memory foam and natural latex. One of Australia’s first ‘mattress-in-a-box’ players, they pioneered the 100-night trial and to date are the only company who offers customers the ability to adjust the firmness of their mattress with the pull of a zip.
The business has gone from strength to strength, and just three years after launch, Mr Sinnappan and Mr Wijeyeratne appeared on Shark Tank.
They went on the show asking for $500,000 for 5% of the business, valuing the company at $10 million.
“In the weeks leading up to the show we discussed which of the Sharks we’d most like to make a deal with. Janine Allis and Steve Baxter were at the top of our list, based on their experience.
But we thought any of the Sharks would be able to contribute valuable insight and connections to help us reach our goals,” said Mr Sinnappan.
Following rapid growth during its first three years – having turned over $300,000 in its first year, then $2.4 million and $4.7 million the following two years – the co-founders only forecast $5.5 million for the current financial year, citing a slowing of organic web traffic for the deceleration.
This made the Sharks question the company’s valuation, prompting a low offer from Andrew Banks, who offered $500,000 for 20 per cent, plus a $20 royalty for every mattress sold until his investment was paid back. The pair turned him down.
Then Steven Baxter made an offer. But the real reason they turned him down never made it to air.
Steve made us an offer of $500,000 for a 15% stake in the business. This effectively cut the valuation of Sleeping Duck by a third, from $10 million to $3.3 million.
“It was a lower valuation than we had wanted, but we thought Steve probably knew the most about the online mattress business and would be able to help us grow,” explained Mr Sinnappan.
“We went back into the tunnel to discuss the deal and decided to counter with a 10% stake for $500,000, giving us a valuation of $5 million. We were genuinely open to negotiation and assumed we were going to walk away with a deal that night. But when we went back to face the Sharks, Glenn Richards dropped a bomb.
“He said we shouldn’t take the deal because all Steve wanted was to take the brand and sell it to a competitor. Steve admitted it, saying we were a prime target for takeover.”
“We spent hundreds of hours in research and development devising our mattresses. We’re not just another mattress company” said Wijeyeratne.
“We tried to explain this to Baxter, but he didn’t get what we were about. That’s why we turned him down. We couldn’t get into business with someone who doesn’t align with our values. We have very ambitious plans for the future and we want an investor who’ll help us realise our dreams. Not sell us off to the highest bidder.”
Since appearing on Shark Tank, Sleeping Duck has expanded into New Zealand and Hong Kong. It already sells in Australia, the UK, and multiple locations throughout Europe. Its next steps will be a planned expansion throughout Asia.
