'Shark Tank': Why this baked cheese company walked away from a 6-figure deal with Mark Cuban
Many entrepreneurs with the chance to pitch on ABC's "Shark Tank" would do anything for a deal, especially one with Mark Cuban.
But on Friday's episode, Just the Cheese founder David Scharfman declined Cuban's offer to invest in his baked cheese company – and declined offers from Sharks Kevin O'Leary and Lori Greiner too.
Scharfman entered the Tank asking for a $500,000 investment in exchange for 5% of his cheese bar business.
"When you make a grilled cheese sandwich, the best part is the cheese that melts off into the pan and gets crunchy," Scharfman said during the episode. "Most people look at that and say, 'Man, I wish I could eat just the cheese.'
"Since we're a family of cheese-makers, we looked at it and think, 'How can we turn that into a snack bar?'"
Just the Cheese bars are made in Scharfman's family-owned cheese factory in Reeseville, Wisconsin, according to the company website. His dad Paul is a Wisconsin cheese-maker and helped him create the snack, which is Wisconsin milk and cheese baked until crunchy. Each bar has 75 calories and is sugar- and gluten-free, according to Scharfman.
And after trying the Aged Cheddar and Grilled Cheese flavors, the Sharks were impressed.
"Really good. I have to admit, I've had this before," Greiner said during the episode. "I bought it on Amazon."
"I can't believe it's so simple," O'Leary said.
Next, the Sharks were curious about sales numbers.
"[In 2018] we launched. First year in existence, we did $3.5 million in sales," Scharfman said during the episode. "Year to date, we're at $3.7 million, and we still have four months of the year left" in 2019, he said, at the time of filming.
Scharfman added that his family self-funded the company, putting in around $1 million in the business. It costs about 95 cents to make each two-bar pack, Scharfman said, and it retails for $1.27 a piece.
Tweet of founder on Shark Tank
O'Leary said, "That's terrible margins," but still wanted to make a royalty offer.
"I'll give you the $500,000, but I want a 20-cent royalty per bar [in perpetuity]," O'Leary said. "I think this could be a fantastic business if you get more distribution."
At first, O'Leary was the only Shark to make an offer – Greiner and Cuban initially declined to invest, citing high risk. But after back and forth between Scharfman and O'Leary, the two decided to step back in and make an offer.
"Here I'll help. I'll give you the half a million dollars for 15 cents a bar [as a royalty] until I recoup $750,000," Greiner said.
Following Greiner, Cuban said, "I'll offer you $500,000. I want 15% [equity], no royalty."
But Scharfman declined to accept any of the three offers.
"While I respect both Kevin and Lori's offers, I'm going to have to decline," Scharfman said, as he was worried about doing a royalty deal and hurting his cash flow.
As for Cuban, Scharfman "politely and respectfully" declined, as he did not want to give away 15% of his company.
"I'm feeling a little disappointed. My wife, my family, everyone that pours their heart and soul into making such a great product – I'm disappointed for them that I couldn't bring home a deal, but I hope they're proud of me anyway," Scharfman said.
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Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."