Entrepreneurs looking to raise money for their startup on hit television show "Shark Tank" go to great lengths to make their pitch to the investors entertaining, compelling and exciting. Wine & Design upped that threshold on the episode that aired Friday night: the Raleigh, N.C.-based startup brought a nude model on set.
The model, Richard, was brought on the show as part of a demo of the wine and paint's popular bachelorette party package.
Barbara Corcoran became noticeably flustered and excited.
"I don't believe it!" shrieked Corcoran when the model took off his robe. "I am shaking!" When a teacher, Heather, introduced herself, Corcoran looked past her. "We don't care who you are, Heather!"
The sharks were taken through a brief painting lesson, which they took to with varying levels of success. "This has been the best pitch on Shark Tank. Bar none," said Corcoran.
But it was two male investors who ended up competing over a chance to invest in the franchise. "It is shocking to me that you bring a naked man into the tank, and you get two offers from the two male sharks," said Lori Greiner.
Customers pay $35 per person to be guided through a painting exercise in two hours in a party atmosphere with while drinking wine, having snacks and listening to music.
The husband wife duo Patrick and Harriet Mills started the company as a single location six years ago. In the first nine months of being a single location, they did $250,000 in sales. In the next five years, they franchised their business to 74 locations across 14 states.
They take a 6 percent royalty off the gross revenue of franchisees, which, in the year the show was shot, was $10 million. That means the Mills bring in $600,000 from the franchisees from the royalty. In addition, the start-up franchise fee for each location is another $25,000, bringing in another couple hundred thousand dollars.
Kevin O'Leary liked the model. "This is a dream business," he said.
Robert Herjavec was also impressed. "We have never had somebody on the show that has franchised a business to the scale that you have. Ever. Eight seasons," said the cyber-security entrepreneur.
Building a business franchising and taking a 6 percent royalty means that even though the company has pulled in gross revenue of $24 million across all franchises, the husband and wife duo aren't growing their cash piles very quickly. That's why Mark Cuban passed on investing.
The entrepreneurs came on the show seeking $500,000 for 10 percent equity in their business. Corcoran, flushed though she was at the handsome naked model, said the valuation of the company was "way off the charts" and there was too much competition from other paint-and-sip operations. Wine & Design is the third largest in the country currently.
Despite skepticism from Cuban, Corcoran and Greiner, O'Leary and Herjavec both made offers.
O'Leary offered $150,000 for 10 percent of the company, an investment he felt could be returned in a decent amount of time even with only 6 percent of franchisee revenues going back to the company, and a $350,000 loan at a 12 percent interest.
Herjavec called Mr. Wonderful a "loan shark" for his financing structure and offered Wine & Design the $500,000 investment for a third of the company.
In the end, the entrepreneurs took O'Leary's offer. O'Leary has an online wine business. He also offered to push the franchise on his "social media cannon" and figure out a cooperative deal to be selling his own wine in the art studios. The marketing effort would therefor benefit both O'Leary and the Mills.
Herjavec was surprised Wine & Design didn't take his offer, but as the sharks surmised when the entrepreneurs left the tank, the Mills likely made the decision because they wanted to keep a higher percentage of their company.
Disclaimer: CNBC owns the exclusive off-network cable rights to "Shark Tank."