Tinus: Milestones also exist for investors #DHDL

As is well known, there are other negotiation topics in a start-up investment than „just“ the amount of the investment and the shares that the corresponding investor gets in return. Things like milestones, payout tranches or options for follow-up investments have also come up a few times in „Die Höhle der Löwen“.

On Monday evening, the start-up Tinus provided us with a very detailed case, in which a not very common secondary condition was explicitly negotiated. Tinus also gave us a few important tips on what to look out for in such a negotiation.
The start-up presented a special pillow to the lions that should make it easier for tinnitus sufferers to fall asleep. Those affected often have the problem of having to drown out the constant beeping noise in their ears or at least distract themselves in order to fall asleep well. Some watch television, many listen to music or podcasts. However, this often disturbs the partner, and trying to fall asleep with headphones is also a difficult undertaking.

The special pillow of the founding team from Munich was designed to remedy this: not only was it designed so that only the person lying on it could hear the music or podcast playing, but it could also detect when the user fell asleep and then slowly fade out the programme to fall asleep.

The lions even saw the use case with other groups and praised both the product and the founding team catchily.

Carsten Maschmeyer in particular seemed taken with it and soon approached Ralf Dümmel, who, however, had reservations about the start-up’s premium strategy. After all, the sales price was to be just under €800, and the two pitchers did not initially see a cheaper version – even with falling manufacturing costs.
But Carsten Maschmeyer did not give up and convinced Ralf Dümmel to make an offer at least once, even if it was aimed in a completely different direction than the founding team wanted: instead of the requested 350,000 € for 10%, the investor duo wanted 25%, but only if the start-up could imagine a change in strategy. Instead of the planned 4,000 units, Ralf Dümmel wanted to produce 50,000 units directly and, through the increased quantity, lower the production costs to such an extent that the finished cushion could eventually be sold for €199 and thus open up the mass market.

The Tinus team actually went for it – and let it be known that the previous strategy was rather due to the fact that one could not achieve these quantities so quickly on one’s own, and that it was therefore not an option so far.

But the power of the lions was also supposed to cost something, and so they entered into negotiations: the founding team spoke with their existing investor on the phone, and – unlike Ralf Dümmel’s expectations – did not come back with a straight counteroffer regarding the shares, but made things a little more complicated.

The lions were initially to continue to receive only 10% shares in the company, but a further 10% if a certain quantity of cushions had been sold. In addition, the investors were offered a 1% share in sales until the investment was paid back.
The former is probably something very strange for many scene ears, after all it is usually the founders who commit to reaching certain milestones. This typically happens in rather large investment rounds and with ambitious growth targets and relatively high and rather speculative valuations. In other words, these are often valuations based on potential that both parties see in the market, rather than on more hard factors such as certain metrics that can already be demonstrated with the existing business model. In this case, investors reduce their risk by dividing the investment into several tranches and only paying out the respective tranche when the corresponding milestone has been reached. If these targets – usually turnover targets, but often also development targets – are grossly missed, it is possible that the next, actually agreed cash injection will not be made at all. This is all part of a classic scenario with a typical financial investor.