Boost Juice founder Janine Allis has forked out A$600,000 ($642,276) for a major stake in a chocolate business she dubbed "nearly better than sex" on last night's Shark Tank.
Arno Backes, founder and master chocolatier of Ganache Chocolate, entered the episode seeking a A$600,000 investment for 40 per cent of his business, which currently has retail locations on Collins Street and in South Yarra.
"We offer the ultimate chocolate experience in Melbourne with two chocolate lounges in prime locations," the German-born entrepreneur said.
"We offer the most innovative products — macarons, patisserie, cakes. Ganache Chocolate also has a very strong wholesale arm. We offer chocolate-making classes and the best hot chocolate Melbourne has."
Backes said he wanted the investment to open chocolate lounges in Sydney and Canberra to bring the business to A$15 million turnover within five years, up from A$2.7m with profit of A$333,000 last financial year.
The Sharks loved his chocolate.
"Oh my God," Janine said. "This is amazing. That was nearly better than sex."
RedBalloon founder Naomi Simson revealed she had eaten at both of his stores. "I've tried many of your products and your cakes and your desserts are divine," she said.
But as talk turned to the specifics of the deal, Arno revealed that he had a business partner who owned 49 per cent. Greencross founder Glen Richards questioned why he was willing to give away 40 per cent, which would dilute his total share to around 30 per cent.
"That's a big percentage you're prepared to give up," he said. "I just want to do a reality check here. You'll go from being a 51 per cent shareholder to quite a lot less than that. How do you feel about that?"
Backes replied that "30 per cent of a A$15m turnover business is still way more than what we're doing now". Asked how long until the new stores would stop burning cash and become profitable, he predicted break-even within three to six months and a return on investment within two to three years.
Digging deeper into the numbers, Janine flagged the business' high costs, particularly wages. When Backes said he had a "very good, dedicated team", she hit back with, "I don't know if they're that good".
"Thirty-six per cent of your sales in staff wages isn't good," she said. Backes said he agreed it could be better. "Is it fair to say that you love chocolate more than you love business?" she asked.
"For you to offer up a percentage that will give us a majority share is saying to me, 'Let me be what I'm great at, I need help with the business side.'"
Internet entrepreneur Steve Baxter said it was "worse than that".
"It's a distress flare," he said. "[He's] basically saying, 'I can't do this, I need help.'"
When Janine said it was concerning that he had been operating for 10 years and was still only turning over A$200,000 profit a year, Backes revealed he had had "a few setbacks".
"I was diagnosed with cancer six years ago," he said.
But he said he was "all good" and had recovered his energy after treatment.
Naomi was the first to pull out, followed by Steve and Glen. Investor Andrew Banks said he thought the product was "amazing", but he was worried about the business model and Backes' capacity to adapt.
"I've got another business I'm invested in that is going to be a very good wholesale client and frankly I think I can make more money out of your chocolates than you can at this stage," he said.
Convinced by the product, Janine opted to stick around.
"In fairness you have been operating this long, you should be further ahead," she said. "There's some challenges I'm just trying to dig a bit deeper to understand it."
She offered to meet Backes' original request of A$600,000 for 40 per cent — but with three conditions. "That I meet your partner and she's not Godzilla," she said.
"The second one is you have to get your cost of goods down to 33 per cent. The third is the wages have to be a maximum of 30 per cent. That shouldn't be difficult, I think that's poor management."
Backes happily accepted the terms and left with the deal. "This could be phenomenal," Janine said.
"I've got 40 per cent of the business. I should get my money back in two years."