How is this idea worth $30 million?

[madoka]

Kid decides to offer band-aids through a specialized vending machine and he rejects a $30 million buyout?

http://money.cnn.com/2016/05/10/tec...crunch-disrupt1212PMStoryLink&linkId=24317909

Taylor Rosenthal is ready for the big leagues. The 14-year-old is exhibiting his startup idea -- a vending machine that dispenses first aid products -- at TechCrunch Disrupt this week in Brooklyn.

The first-time entrepreneur doesn't sound nervous. He's actually looking forward to the trip from his hometown of Opelika, Alabama.

Still, it's a big deal.

"They told me that I was the youngest person to ever get accepted to the event," said Rosenthal. "It felt awesome."

Rosenthal's startup RecMed, which he launched in 2015, has already been generating buzz. He's raised $100,000 in angel investments and has already rejected a $30 million offer to buy his idea.

RecMed started as an eighth-grade project when Rosenthal was one of 19 students in a Young Entrepreneurs Academy class.

"We had to come up with a business idea," he said. The straight-A student, who's a first baseman and pitcher for his high school baseball team, had one immediately.

"Every time I'd travel for a baseball tournament in Alabama, I'd notice that kids would get hurt and parents couldn't find a band-aid," he said. "I wanted to solve that."

. . .

Users pick from two options: prepackaged first-aid kits for dealing with issues like sun burns, cuts, blisters and bee stings (they run from $5.99 to $15.95). You can also buy individual supplies like band-aids, rubber gloves, hydrocortisone wipes and gauze pads, which cost $6 to $20.

Rosenthal hopes to start deploying the machines this fall. He said they make sense at "high-traffic areas for kids" like amusement parks, beaches and stadiums.

He already has an order from Six Flags for 100 machines.

RecMed will make money by selling the machines, which cost $5,500 apiece, and through restocking fees for the supplies. Rosenthal said he's also open to putting advertising on the machines.

I've seen plenty of regular vending machines that sell first aid supplies (along with snacks), so I don't see the need for a $5500 specialized machine for this.

Plus, why offer $30 million for the idea? I would imagine it would cost probably less than a couple hundred thousand to develop your own specialized vending machine.

 

[SearchMaster]

Well he has a patent so you can't just develop your own.

And it is hard to conceptualize that the business as it stands is worth anywhere near $30M, but obviously someone has told him otherwise or he would have sold. Probably for the better; now he and his team will have to work their asses off to build the business instead of just handing a huge check to a 14 year old (which would almost certainly end badly).

 

[twinrider1]

edit. what he said. /\

 

[luv2liv]

im confused too.
in the city, there's walmart/cvs/walgreens on every other block. then for kids area, like six flags, isnt there a first aid station where they dispense bandages for free?

 

[kranky]

It might be a great idea, but I have no clue why someone would buy the idea. Just go do your own version of medical vending machines.

 

[dainthomas]

Well he has a patent so you can't just develop your own.

And it is hard to conceptualize that the business as it stands is worth anywhere near $30M, but obviously someone has told him otherwise or he would have sold. Probably for the better; now he and his team will have to work their asses off to build the business instead of just handing a huge check to a 14 year old (which would almost certainly end badly).

Someone stupid. A small percentage of that would pay for a top flight education anywhere, and he'd still have plenty of bread left to be able to do whatever he's passionate about. I'm assuming that would include something other than building vending machines.

It would be unfortunate if he's holding out for a higher offer that could never materialize.

 

[vi edit]

Some old phrase about "Not looking a gift horse in the mouth"....

Yeah. Take the 30 million and run. All it takes is one whack-a-loon parent and a bad infection to bring your business down. Would not want to be responsible for the legal obligations of ensuring that all your products were sterile. I don't know if that's something you can disclaimer your way through and have it hold in court.

 

[madoka]

I just don't see the value in it. The idea is certainly not new. These kinds of machines have been around for decades, so what was it that he was able to patent that's so different?

 

[SearchMaster]

I just don't see the value in it. The idea is certainly not new. These kinds of machines have been around for decades, so what was it that he was able to patent that's so different?

I've never seen anything like any of those in my nearly 50 years, which should indicate how much his idea is truly worth. I've seen pain relievers in normal vending machines and the small truckstop/bar wall machines with condoms and pain relievers but nothing dedicated to medical needs like those.

Oh well, best of luck to the young man - I'll be rooting for him to make it work, but I can't say I'm optimistic that he'll ever see a fraction of the $30M. It makes me wonder if it was a real offer, or if he was in a meeting with some company and someone made an offhand remark at the end - "how much would you take for your company? $1M? No? How about $10M? No? What about $30M lolol?".

 

[Nashemon]

I just don't see the value in it. The idea is certainly not new. These kinds of machines have been around for decades, so what was it that he was able to patent that's so different?

I think the difference is the kid is charging $6 - $20 for a band-aid, when the previous machines were $1 - $5. Plus the money from advertising. lol

Nah, but really, I don't know what the patent is for. It can't just be for vending machine dispensing first aid supplies. It must be for the method of dispensary or something. The images suggest it's touchscreen, and you can't openly view what's inside. Maybe it's more secure than a traditional vending machine with it's glass window.

 

[Nashemon]

I've never seen anything like any of those in my nearly 50 years, which should indicate how much his idea is truly worth. I've seen pain relievers in normal vending machines and the small truckstop/bar wall machines with condoms and pain relievers but nothing dedicated to medical needs like those.

Oh well, best of luck to the young man - I'll be rooting for him to make it work, but I can't say I'm optimistic that he'll ever see a fraction of the $30M. It makes me wonder if it was a real offer, or if he was in a meeting with some company and someone made an offhand remark at the end - "how much would you take for your company? $1M? No? How about $10M? No? What about $30M lolol?".

Thing is, he already accepted $50K for 20% of his company, which means he values it at $250K. Not accepting the buyout of $30M seems like a mistake. Patents are what? $6000? It's a 5000% profit in 1 year. But there must be more to this story that what's being reported.

 

[SOFTengCOMPelec]

I can see why it would potentially be worth $30,000,000.

(Partly from the linked to article in the OP post), because the events last 6 hours, and the (somewhat recent) minimum wage requirements. It has become rather expensive to have worker(s), selling stuff for 6 hour stints. Especially something which probably does not sell that much, such as medical supplies.
So a vending machine is a potentially good idea and fit for that situation.

The vending machines sell for something like $5,000 each, and he has already sold something like 100 (or more), just to one customer, already.

So he has created a company, which is in a very good position to grab a big chunk of this emerging market. With the vending machines being ready (or nearly so), customer(s) buying the machines, and marketable ideas, on what/where to sell the stuff (place the vending machines).

Hence potential offers for $30,000,000.

At the end of the day, if he really did get a SOLID offer for $30,000,000, at such a young age. I think he was relatively crazy to NOT accept the offer, and sell his idea/business/stuff to them.

Then keep most of the $30,000,000 to get a virtually guaranteed (nice), future lifestyle AND capital to invest in his future ideas.

E.g. $200,000 to spend now.
$25,000,000 for a safe future.
$5,000,000 possible risk capital in future business ventures.

Obviously taxes and other expenses, would need to be subtracted from the above figures.

tl;dr
A bird in the hand is worth two in the bush. So keep/get the $30,000,000 and DON'T worry that the idea "COULD" of been worth a lot more in the future.

 

[DrPizza]

But there must be more to this story that what's being reported.

Agreed. For starters, it looks like Six Flags is going to start charging for band-aids (and at an extortion rate) instead of just giving you a band-aid if you get hurt in their park.

 

[Imp]

Wait, wait... you can put things other than candy and soft drinks in vending machines! OMFGBBQ, MIND BLOWN.


Reminds me of a coworker who was "bragging" about how her boyfriend had a $1 million internet company years ago... Problem is that the guy who supposedly offered him $1 million took his entire business and never paid. If I offer a kid $10 million for his candy, take it and haul ass, do I owe the kid $10 mill?

 

[SearchMaster]

The vending machines sell for something like $5,000 each, and he has already sold something like 100 (or more), just to one customer, already..

But it's a very limited marketplace - once you've sold them to Six Flags you won't be selling to those locations again. So very growth in the Six Flags marketplace. So of that $500,000 gross revenue, how much is profit? 50%? The cost of manufacturing a machine like that is surely pretty high, especially the initial run.

A general rule is that a company like this is worth 5x EBITDA, which is basically net income. This formula doesn't work until the company is better established of course, but let's assume that net income would need to be $6M in a year or two. That's NET income, even if the machines plus other overhead (wages, sales cost, etc.) "only" cost $1K per unit and they are sold for $5K, the gross revenue would need to be $7.5M, or 1,500 units - per year. So a sale of 100 units to Six Flags is a great start, but they have to have at least one of those big sales per month. And that 5x EBITDA rule assumes flat or steady growth....like I said, once you sell to the big targets, you can't easily sell to them again. Plus my theoretical profit margin of 80% is EXTREMELY optimistic, it's more likely closer to 20% than 80%.

Furthermore, what's the market for this device? Amusement park chains like Six Flags are a great market because a single sale is many units. Retail establishments (Walmart, grocery stores, drug stores, etc.) are not a market because they already sell that merchandise inside. Baseball parks, as mentioned, are another good market but there aren't that many with a central location - they are usually owned by municipalities so making 100 individual municipal sales will be much more expensive than one Six Flags sale. IMO the primary market would be somewhere like Six Flags where the customer would rather fill their gift shops with trinkets than first aid equipment and would rather sell it (increasing profits) than give it out for free. There is much less incentive for municipalities (and state parks, federal parks, etc.) to purchase them because they would be a cost center not an increased profit center.

 

[vi edit]

Or the 30 million could just be total bullshit thrown out to hype the product. Sort of how sports agents cook the market.

 

[mrjminer]

Yea, I've seen similar before.

This kid is a fool. His parents must be idiots, too.

 

[jlee]

Or the 30 million could just be total bullshit thrown out to hype the product. Sort of how sports agents cook the market.

Perhaps.

Yea, I've seen similar before.

This kid is a fool. His parents must be idiots, too.

If it is legit, absolutely. $30mil is ten times what you need to live an incredibly comfortable lifestyle effectively indefinitely. It's solidly past the "never need to work again" figure...it's not like he turned down $300k because he thought he could make $3mil.

 

[Net]

holly crap. if he took that 15 million then invested it in the s&p 500 assuming 8% annual return, when he turns 30 years old he'd have $51,389,139.65

then again, maybe he would rather have the business then the money. his future ideas might not be good enough to create a business around and let him be the ceo of it.

EDIT: if he invested $15 million till he's 55 years old assuming an 8% return then it would be $352 million. lol.
Or if he invested $15 million till he was 65 years old then $759,806,122.71

 

[holden j caufield]

even with 2 or 3 pretty bad years is it feasible to bring in 8% over a 15-20 year span?

 

[GagHalfrunt]

Can't you get crap like band-aids and aspirin in vending machines in gas station restrooms?

Hell, why would Six Flags buy the machines and commit to a re-stocking contract? They have first-aid stations already and they could carry simple items like band-aids and gauze in the gift shops. A 1'x1' display on the counter could easily supply the most needed items and the park would reap the entire profit. Move the key-chains to aisle three. Done.

 

[Shlong]

He gave up 20% equity for $50k and rejected an offer for $30 million? He's going to regret this big time in a few years.

 

[Midwayman]

If it is legit, absolutely. $30mil is ten times what you need to live an incredibly comfortable lifestyle effectively indefinitely. It's solidly past the "never need to work again" figure...it's not like he turned down $300k because he thought he could make $3mil.

No kidding. To be able to have the freedom to never be obligated to work in your life... can you even imagine the freedom? You only do work you love. You only work with people who are pleasant to work it. Never have to deal with abuse bosses or long hours.

 

[Jeff7]

im confused too.
in the city, there's walmart/cvs/walgreens on every other block. then for kids area, like six flags, isnt there a first aid station where they dispense bandages for free?

There are also purses and wallets which can be used to transport small flat things.


"Does anyone have a bandage?"

If it's something more urgent than that.....I guess I wouldn't want to rely on a vending machine.
"Dammitall, the tourniquet got snagged, and then the iodine got caught on that. Is there a vending machine here that sells glass-breaker hammers?"

No kidding. To be able to have the freedom to never be obligated to work in your life... can you even imagine the freedom? You only do work you love. You only work with people who are pleasant to work it. Never have to deal with abuse bosses or long hours.

"Pass. I'm 14, I can do better than that."

Two ways this'll turn out:
- Kid ends up working as lower management at Menard's.
- Kid figures out how to leverage chip-scale quantum computers into highly advanced smartphone-like devices with wide appeal that Apple can only dream about now, partially funding the R&D effort with money from his successful $15M/yr medical vending machine business.

 

[holden j caufield]

Don't they provide you a 2 cent band aid for free after paying $80 dollars for 1 day entrance and $5 for water.