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Kevin O’Leary Defends Those Perpetual Royalty Deals On ‘Shark Tank’

By Sarah Field
Published on: 13:30 PST, Apr 10, 2016

If fans of Shark Tank know one thing, it’s that Kevin O’Leary loves royalty deals. The investor has a history of foregoing a huge equity stake in favor of a set amount of future sales. Sometimes entrepreneurs bite, often they don’t. But when the royalty deal works, according to O’Leary, it makes him money and boosts the business — even if the royalty payments continue long after he’s made back his investment.

In an interview with Forbes, O’Leary was asked whether a lifetime royalty was “fair,” to which the dubbed “Mr. Wonderful” answered in the affirmative — because his work is never done. He insists the entrepreneurs benefit from his involvement, pointing to one of his Shark Tank success stories, Wicked Good Cupcakes. The Boston eatery agreed to a royalty deal and now has multi-million dollar annual sales.

“I work every day for it. I keep them in the press. They have very low customer acquisition costs because I am promoting them all the time. I work with all the other companies in my portfolio to promote Wicked Good Cupcakes. Our interests are completely aligned. That’s what’s so beautiful about this deal. The more they sell, the more I make. So I want them to sell more.”

When Wicked Good Cupcakes was featured on the Shark Tank companion series Beyond the Tank, O’Leary admitted he didn’t want equity in the company because he suspected the owners would never sell — limiting his options for an exit strategy. The business is family-run; mother-daughter team Tracy Noonan and Dani Vilagie came up with the idea after taking a cake decorating class together.

Back in 2013, not long after their Shark Tank appearance, Vilagie told Business Insider that their initial hesitation about a perpetual royalty deal was eventually assuaged by their positive working relationship with their investor.

“When we first made the deal with Kevin, it felt like we were making a deal with the devil.

“He’s been a tremendous mentor. [He’s] very approachable, has a big heart, is very hands on, and loves Boston.”

But O’Leary is not only focused on royalty deals. He told Forbes he’s done venture debt deals and straight equity deals. He, perhaps jokingly, accused the other sharks of having a lack of creativity, claiming “there [are] all kinds of ways to skin the cat.”

He also told Forbes that all of his Shark Tank returns over his years on the program have come from businesses owned or run by women. O’Leary has made similar comments over the past several months, and has insisted to CNN Money that it is just a fact — that he had no interest in pointing out differences between men and women, in business or elsewhere.

“I’m not into, you know, gender warfare. I don’t care. I would give a goat money if I could make money with a goat.”

Among those successful companies is Surprise Ride, which did not get an investment on Shark Tank. O’Leary surprised the company’s young entrepreneurs during a Beyond the Tank update with an investment offer, which they accepted. When they pitched in 2013, Surprise Ride anticipated $500,000 in revenue in 2014, a goal they met. They surpassed $1 million in sales in 2015.

O’Leary’s offer to Surprise Ride was a royalty deal. In exchange for an investment of $50,000, he would get 2.5 percent of the company, as well as a 6 percent royalty until he recouped $150,000. As Business Insider recalled, the company’s owners, sisters Rosy and Donna Khalife, had sought an investment $110,000 for 10 percent equity back in the tank and balked at Robert Herjavec’s offer of $110,000 for 25 percent.

Kevin O’Leary is still making deals every Friday night at 9 p.m. on ABC’s Shark Tank. Beyond the Tank is currently airing Tuesday nights at 10 p.m.

[Photo by Aaron Davidson/Getty Images]

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