XCraft Before Shark Tank
If someone were just introduced to the idea of start-ups, venture capital, and entrepreneurship, Shark Tank would take them by surprise. After all, start-ups are all in the tech sphere, pushing emerging technologies like augmented reality and machine learning. Their employees are hoodie-wearing, Red Bull-drinking coders. They live in the Bay Area and prioritize social media marketing over sales or business plans. The public vision of a start-up is The Social Network. By and large, Shark Tank is pet food and potty training products. To be sure, there’s plenty of variety in Shark Tank pitches, but it’s rare that an idea checks all the boxes for “cool”. XCraft is the exception.
XCraft is a mass market developer of innovative drone technology. Its main product, the X PlusOne, combines the hovering ability of a helicopter with the speed of a plane. A smaller drone that makes full use of features common to most smart phones is slated for a launch in the fall of 2016. By taking advantage of the recent developments in unmanned and autonomous flight, as well as increasing camera quality and accessibility, XCraft hopes to take the drone market by storm.
With such cutting-edge technology, they needed an experienced team. JD Claridge, the CEO, is an aerospace engineer with experience at Volant Technica and Quest Aircraft. Charles Manning, XCraft’s co-founder and chief evangelist, is the CEO of Kochava, a leading mobile analytics company. The diversity of the team goes beyond JD and Charles. Their COO, Andrew Cook, is a Bitcoin investment expert. They have several engineers, a former Marine, and a production manager fluent in Chinese.
As if it’s any surprise, XCraft “got off the ground” with a foray into crowdfunding. The project launched in late 2014 with a funding goal of fifty thousand dollars. After a month-long campaign, XCraft raised almost three times this amount. Backers pledged an average of $545.25 for a variety of perks, including pre-orders of the finished product, development kits, accessories, and intermittent progress updates.
However, Kickstarter is rarely enough investment to sustain a business of this size. R&D costs, as well as building inventory and hiring employees, mean a greater need for venture capital. With hopes to push out new innovative products and expand drones into a variety of consumer applications, JD and Charles will need more funding. XCraft has validated their business with the crowdfunding campaign, but will that be enough to change the minds of the often-conservative sharks?
XCraft During Shark Tank
JD and Charles entered the tank in style, flying the X PlusOne into the room ahead of them. After a smooth landing, they compared the emerging drone market to the dawn of aviation. The Wright brothers changed how people thought of transportation by pioneering manned flight. Drones were doing the same unmanned flight. The X PlusOne was a drone redefined. While many traditional drones offered hovering options, the ability to convert into a plane gave the product far-ranging applications. From filming a moving vehicle to covering a greater distance in a single charge, the X PlusOne could do it all. It could even seamlessly convert between its two modes mid-flight and be programmed to follow a specific flight path. For twenty percent of XCraft, JD and Charles requested a five hundred thousand dollar investment.
Daymond and Robert wanted to scout out any red flags early on. The business partners responded to questions about the X PlusOne’s flight range by citing autonomous flight options. A flight path could be programmed ahead of time, so users wouldn’t have to follow it around with a controller. Amazed, Robert wondered if this was legal. Regulations stated that users must respect other aircraft, keep the X PlusOne within line of sight when used for recreational purposes, and fly below four hundred feet. Otherwise, it was all legal.
Next, the sharks inquired as to its viability. At a price point of eighteen hundred dollars, would it be difficult to find a target audience? JD brought up the Kickstarter campaign, as well as another thirty thousand dollars in pre-sales, as product validation. The co-founders also brought up their shared history in aerospace engineering and software. This experience contributed to both the construction of the product and development of flight plan software.
Satisfied that JD and Charles were the real deal, Kevin gave some advice on applications. A managed forest area on his thirty-six-acre property had to be periodically examined for diseased trees, so looked into drones for this purpose. He wondered if camera capability had been considered for the hover mode, and JD claimed that this was in development. He also took this opportunity to show off the PhoneDrone, XCraft’s second product. The device is a small collapsible chassis that holds the user’s smart phone. It takes advantage of the accelerometers, gyroscopes, GPS, connectivity, and cameras of smart phones to create a portable and consumer-friendly experience. The PhoneDrone was expected to market for three hundred dollars, with a production cost under one hundred.
Robert wanted help framing the business. Again, who was the target audience, and what was XCraft’s “secret sauce” to differentiate it from competitors? Charles cited the intellectual property behind the designs of both products, as well as licensing opportunities, which Kevin called “music to my ears”. For a moment, XCraft seemed too perfect. Why did they need the sharks? While investors are most often repelled by early-stage start-ups, they also resist jumping on the wagon too late. JD said that half of the money would be used to scale production to reduce costs and the other half would be used to finish development of PhoneDrone.
Already recognizing the value of this market, Kevin showed initiative by making the first offer. For twenty-five percent, Kevin offered seven hundred fifty thousand dollars. Predicting a “nasty, nasty shark fight”, Daymond entered the negotiations at a million dollars for twenty-five percent, which Kevin immediately matched. Lori offered an even better deal, a million dollars for twenty percent, which Kevin also matched. In under two minutes, the value of the business had doubled to five million dollars.
Before a brutal bidding war could emerge, Robert advised that they step out to discuss things in the hall. Before they could form a cartel against XCraft, Charles had a proposition. He made the first move by suggesting a cooperative venture between the sharks, a sort of syndicate. However, JD nearly killed their chances with the valuation. JD saw the doubling of XCraft and wanted to recreate a miracle. He asked for a ten million dollar valuation. For reference, the sharks often cut their individual investments for the added value of more expertise.
Daymond began to express reservations, calling the tactic greedy. However, he apparently still wanted a deal, tacking another million on to the previous highest offer. His ceiling was a six million dollar valuation. For Kevin, the floor was five percent of the company. At any lower equity, XCraft wouldn’t be worth his time. Mark had stayed silent throughout the negotiations, so Charles gauged his interest. With a smile and a “we’ll see”, they continued. At three hundred thousand for five percent a piece, Robert and Mark were both hesitant. Robert pointed out potential privacy concerns, and Mark simply wanted to hear out JD and Charles. After the two returned from a private discussion in the hall, everyone was ready to go.
Kevin, Daymond, Lori, and Robert signed on in rapid succession. Mark was the only hold-out. He wanted to build on the confidence of other investors. Surely, XCraft had fielded conversations with other parties? Charles answered that, yes, they had. However, most other parties saw this as nothing more than an early stage investment with high potential yields. They didn’t have the diverse expertise of the sharks, and they didn’t have the same reputation for execution. Robert agreed. “A lot of these VC [venture capital] guys…they’re smart, but they don’t get their hands dirty running businesses.” Apparently, this was the last piece of Mark’s puzzle. He accepted.
In an almost unprecedented move, every shark cooperated for a deal all parties were happy with. “You’re gonna own this market,” Kevin declared. JD and Charles were more than satisfied with the deal. They got a higher valuation, more capital up front, and five strategic partners to push their technology from every angle imaginable. Their success tells the story of a nearly perfect pitch. They had an innovative and demanded product, in an emerging field. They had outstanding sales, considering they were primarily raised in a one-month Kickstarter campaign. They had the technical background. Except for a slight tactical misstep of negotiating to aggressively, they did everything right. Any tech entrepreneur should look to the success of XCraft as a blueprint for success.
XCraft After Shark Tank
Since the XCraft episode aired in late 2015, there have been a number of developments. Kickstarter backers have begun to receive their development kits and X PlusOne drones, with little feedback so far (which may be a good thing as people love to complain online if a product doesn’t meet their expectations.)
With the unexpected order capacity and use of multiple platforms (Kickstarter, Indiegogo, and the XCraft website), there was also a mix-up on order numbers in early 2016 however that appears to be resolved now. In response to the meteoric rise of the business and new customer concerns, the founders saw fit to hire a team, complete with a new community manager.
As of summer 2016 you can actually purchase the XCraft on Amazon.com – click here to check out all 3 models available. Best of all you can get the XCraft with Free Prime Shipping.
Half of the sizable investment was meant for research on the PhoneDrone. How far has XCraft come since the non-functional prototype shown off in the tank? Crowdfunding worked well enough for the X PlusOne, so they decided to take a similar approach for PhoneDrone, now known as PhoneDrone Ethos. A Kickstarter campaign went live right after Shark Tank aired their episode, in which they were seeking one hundred thousand dollars. With an even more successful campaign that the first, they raised a total of nearly four hundred thousand dollars between KickStarter and Indiegogo.
A glance at the Kickstarter update section suggests that they’ve been busy beyond just raising money. As of February of 2016, they had hired their new team, secured a manufacturer, and shifted their base of operations to Coeur d’Alene, Idaho. They hope the larger facility in a start-up-friendly town will function like a mini-Silicon Valley for the company. They’ve also opened surveys to establish direct channels of communication with their customers, as well as a referral campaign to make XCraft a viral success. As of April 2016, they’ve unveiled a more responsive PhoneDrone Ethos prototype, which will be field-tested further when weather permits. Given the magnitude of production, PhoneDrone Ethos looks on-track for its shipment date of September 2016.
Season 7, Episode 5
Initial valuation and offer:
$2,500,000; 20% for $500,000
Offers from sharks:
- Kevin: $750,000 for 25%
- Daymond: $1,000,000 for 25%
- Kevin: $1,000,000 for 25%
- Lori: $1,000,000 for 20%
- Kevin: $1,000,000 for 20%
- All sharks: $1,500,000 for 25%, 5% each (accepted)
X PlusOne: About $170,000; Kickstarter and direct pre-sales through website
PhoneDrone Ethos: About $370,000; Kickstarter and Indiegogo
Visit xcraft.io for trailers, updates, and purchases. XCraft also posts updates on its Kickstarter page here.