♪

I'm Yen. - And I'm Peter.

Peter: We're brothers from Austin, Texas.

Yen: And we started a sushi revolution, "How Do You Roll?"

- Great combination! - You got it coming right up!

I'm the CEO of the company. I deal with all the business stuff.

And I'm the COO. I'm on the creative side and I came up with the menu.

Everything good? Yeah?

Yen: We both grew up in the restaurant business.

Our parents had several Chinese restaurants so at the tender age of 8 and 9,

we both started working in our parent's job.

The restaurant business is in our blood, it's in our veins. It's just what we know.

What can I get for you, sir? - I love to have that Slammin' Salmon.

Yen: Slammin' Salmon, you got it.

Yen: Together we create a sushi experience that's never been done before.

Can you add cucumber to that? Artichoke? - Can I get that with crab?

Yen: We've allowed the customer to become the chef.

Our customers get to choose everything from what type of wrap they want to use,

to the rice they want to use.

The veggies, proteins, the sauces and toppings--

Peter: And nobody is doing what we're doing today.

Getting an investment from the sharks is critical at this stage of where we are as a company.

I believe our business model is going to be the next great thing in ethnic food.

And with the shark's investment we'll be able to explode this concept.

♪ [dramatic music]

♪

Hello Sharks. My name is Yen Young. - And I'm his younger brother, Peter Young.

Our business is How Do You Roll?

We are seeking one million dollars for 12% of our company.

How Do You Roll is a fast, casual restaurant where you get sushi rolls made to order

just the way you like 'em.

Before we came onto the scene, if you wanted sushi, you really only had two choices.

Option one was to go to a fancy sit down sushi restaurant where you had to dress right, smell right.

Gotta like techno music [laughter]. Those can be fun occasionally if you want to spend

more money than you actually have trying to impress people you really don't like.

So that leaves you with your second option, you go down to the local grocery store

you get a pre-made roll made fresh "daily," you just don't know which day of the week it was actually made.

The quality is just subpar.

And because of Yen's horrible experience, we started the sushi revolution three years ago with just one location in Austin, Texas.

We've taken the same food quality you get at a high end restaurant and pair it up

with the convenience of the grocery store.

Unpretentious, good food in a fast, casual environment.

Peter: So we want you to experience this for yourself, so Barbara,

we would actually like to invite you up so that you can create your own sushi roll.

Okay Barbara, whenever you go to How Do You Roll,

the first thing you want to do is pick out what kind of wrap you like.

We have seaweed wrap and we have soy wrap.

Barbara: I'll take the soy wrap. Peter: Good choice.

And what you get to do is pick out your protein. We have crab stick, chicken, salmon, tuna.

Barbara: I'll take the tuna. Peter: We also have proprietary sauces.

Do you like spicy? Sweet? Barbara: A little spicy.

Peter: Our best seller is the spicy mayo and I'll go ahead and put that on there.

You can have a seat and I'll bring that right out to you.

Sharks, do not fear. We have food for you, too.

You're going to get to sample our other side of the menu which is our featured rolls.

Male: He's making it right there. He's making it right now.

Thank you, Yen.

Yen: Damon. Damon: Thank you.

Mmm. Thank you, sir. Good sushi. Fantastic.

Yen: Thank you, thank you. Barbara: Hurry, hurry, hurry.

Yen: Barbara, this is your custom roll. Barbara: How nice is this.

Mmm. - Very good. This is very good.

So here's our question, who wants to roll with us?

How did you get started in this?

It's funny--we both grew up in the restaurant business.

I actually said, "I'm never going to be in the restaurant business again, I'm never going to work with family"

because I had to work with my parents growing up. [laughter]

Fourteen years later, here I am standing next to my brother.

Tell us about the economics of the business.

Absolutely. We started franchising 2 and 1/2 years ago.

We have sold 40 total. We've gotten 15 of them open, 2 of them are corporate stores.

Our first two stores are our own. We opened the first two.

Since then we've been focusing on franchising.

And the franchisees--how long has the longest one been open?

One has been open for right at about a year.

And how are they doing? What are the economics of their business?

So far so good, knock on wood. - Are they profitable?

Yen: They are. - What's the average bill in the sit down restaurant?

Roughly it's about $10 to $12. - Sushi is good. Let's talk money.

You're offering me 12% of the corporate entity-- Yen: Correct.

That owns all the franchise flows for 1 million dollars. - That's correct.

So what is this year's cash flow going to look like?

Just on royalties, it's 250 thousand a year. - Wow.

What are your sales in the corporate stores?

One is running $600,000 and the other running $400,000.

Barbara: I would like to ask--I'm going to buy a franchise. Tell me what I have to pay you.

Yen: Okay so cost of the franchise, including the $20,000 in franchise fee,

the building out of the store, buying the equipment: $270,000-$300,000 all in.

Now they're in business but what happens after that? You get a percentage of what they set?

Yen: That is correct. - What is your royalty rate?

Yen: That's 7%. - What other compliance systems do you have to make sure you are getting paid?

We suck it right out of their checking account every week.

So you mean, in other words, they have to set up a corporate account. - That is correct.

Guys, I like the idea and the concept, but that's a brutally competitive area.

I don't want to be in the sushi business so I'm out.

I'm looking at it from a different perspective. I believe it's very well-managed.

I think your presentation is excellent. You have the right combinations of chef guy with finance guy--that's perfect.

The valuation is rich.

It's probably a little bit high. We have had a letter of intent sent to us to buy 75% of the company

and that valuation came in at about 6.6. - Ah! Are you gonna do that deal?

I don't think so. - I don't think you should.

The reason why is because number 1, I don't want to lose that much of the company.

Really, honestly with the opening of 4 or 5 more stores, our royalties will get us to profitability.

Where's your geography right now? Are they all in Texas?

No, they are in California, Marina del Rey. We have one in Phoenix, Arizona. Tucson, Arizona.

I gotta tell you man, you started a business a few years ago and someone's offering you 6.6 million in cash.

You'd be a multimillionaire overnight and you are just talking about turning it down like that.

Power to you because I gotta tell you, first time someone offered me a million bucks, it took me weeks to say no.

I wanted to grab that check and run. [laughter]

The profit you make in food is in appetizers, liquor and or beverages, and desserts.

There is no money in this and you are selling fresh fish.

I think the margin is going to be too low--I'm out.

Okay.

Great presentation. More importantly, great food.

I can't help you with the operation. I don't understand this particular food model.

You are running a great, great business.

I'll bring all my buddies, we'll spend a lot of money-- -Thank you.

But we're not going to spend a million dollars to invest today.

I'm out.

You have 15 locations in 2 1/2 years. - That is correct.

Amazing. - Thank you.

I have recently gotten involved in two different food franchises

and I'm quickly learning how complicated it is so

I have great respect for where you came from and how far you got but I mistrust it.

I think your presentation was so buttoned up, for my liking, a little too buttoned up.

So I'm going to trust my gut on this, I'm out.

Okay.

I like your business, I like you guys. - Thank you.

So I'll make you an offer.

I'll give you 1 million dollars. - Whoa!

Wow. - But I want 22% of the business.

And there is one caveat. [dramatic music]

Narrator: Four sharks are out and Peter and Yen have an offer on the table.

I'll give you 1 million dollars.

Wow!

But I want 22% of the business. There is one caveat: I want a monthly distribution prorated to the owners.

In other words, the partners--obviously you are the majors--we get a check every month

from the free cash that is coming from the franchisees.

The percentage we can negotiate in the future.

That's the only request I have and you get 1 million dollars.

So you are giving them a value of 5 million dollars on the business?

Less than 5 million dollars and on top of that he's getting a check every month--

Guys, I bring a lot of value to the table here. I know this space, not sushi rolling,

but franchise and economics of investing in this.

I'll force some disciplines on you'll thank me four-five years from now.

Can you elaborate a little bit about what disciplines you might be alluding to?

[laughter]

All I'm saying is that the only covenant I'm putting in place is to make you more money monthly.

I'm going to sit down with you and negotiate what portion of the free class flow

that comes from the royalty stream goes into your pocket every month.

Listen to what he just said. He said now he's going to undervalue your valuation first.

On top of that he's taking cash out of the business upfront.

Mark didn't think of the structure.

He's taking the cash out with you.

Kevin, why would they have a firm offer for their business at 6.6 and in their wildest,

socky instilled nightmare take your 5 million?

It doesn't matter what you think, I couldn't care less. It's what they think that matters.

I made you an offer. It's very simple.

I'll be your partner. I'm willing to give you 1 million dollars for 22% of the company.

It's your vision--you still control it.

You don't have to give up control. I don't want control, I just want a return on my investment.

Is that too much to ask? I don't think so.

Are you willing to come down on your equity portion to 15%?

I would meet you in the middle.

Okay, so you'd do it at 20% roughly? - Yeah.

Are you not just curious as to how much he wants to take out of that business monthly?

He has to have some number in his head. - No I don't.

To leave that open ended? - You are actually getting the lion's share of what comes out.

That's true. I wasn't thinking about that. I was thinking even if we got crammed down with this offer

that we would still get some share of distribution. - Absolutely.

So can we have a standing offer to discuss? - Absolutely.

Thank you.

"Standing offer." - That's an aggressive valuation, Mr. O'Leary.

All you want to do is basically--

All he wants to do is protect his downside. - Exactly!

They're giving up their upside because they think they can get at least 15% return on their cash

because that's what their discount was and their discounted cash flow.

I don't need help on this one Mark, I figured this one out myself.

I'm not giving you help, I'm just saying.

The deal with these guys is I think they really need the cash.

Do you want to punt? - I think so.

You want to punt? - Yeah.

I think we have other opportunities out there.

Oh here we go.

[suspenseful music]

Before we answer we just have a quick question.

How are you going to help us with the real estate side which has become very problematic for us?

There is no easy answer to that.

Even when you have 400 locations, every new one is a paramount fight.

There is no question about it.

Those are individual negotiations, every single time.

Now you don't have a person doing your real estate right now, do you?

That is correct. I am doing it.

Yeah but you know, you can't afford one until you're passed 50 locations.

You just can't. You're gonna have to do it. - Okay, that's fair. Yeah.

You're still too small.

You're going to reduce your risk in some ways by growing a little slower, I think,

whether you take me on or not is a part.

If I were you I would take me on. [laughter]

Peter? What do you want to do?

Okay. If you feel like that's the right decision-- - We'll take your offer.

- Whoa! Wow!

Kevin, I even started to believe that crap.