Novel Effect Before Shark Tank
Novel Effect founders, Matt and Melissa Hammersley, were awaiting the birth of their first child when their friends held a baby shower with a literary theme in their soon-to-be daughter’s honor. They received children’s books as gifts, but the most memorable moment came when one of their friends read a story to the gathering, with some novel sounds effects included.
The story-telling friend was so skilled at adding appropriate sounds to the story, that the effect on the audience was magical. Matt and Melissa were so inspired by the way the children were captivated by the story, that they had a light-bulb moment when they realized that if every parent could relate a story, in the same way, every child listening would fall in love with reading.
Matt, in particular, couldn’t let the idea go, and after a few months thinking about how the magic of sound-effects could be brought to every child’s story-time, he and Melissa launched the Novel Effect business, an innovative concept that merged the traditional joy of reading with voice-recognition technology.
The couple was so committed to making the business a success that they sold their home and moved across the country to Seattle, Washington, where they began a partnership with retail giant Amazon, owners of the voice-recognition device Alexa. They gained funding from the Alexa fund, which promotes voice-recognition innovations, and applied to appear on Shark Tank. Matt and Melissa were not successful at first, but after they were spotted promoting Novel Effect at the South by Southwest festival (SXSW), they were invited to pitch their idea to the Sharks, and hopefully bring some of that Novel Effect magic to the tank.
Novel Effect On Shark Tank
When Matt and Melissa first entered the Shark Tank, they were accompanied by three young children, who quietly sat down while the couple introduced themselves. Matt announced they were looking for a $500,000 investment, in exchange for 10% of the Novel Effect business. Melissa explained that Novel effect was an app that created a magical experience for children, by combining the Novel Effect voice-recognition software, which supplied the sound effects at the correct time, to a traditional children’s story-time. The voice-activated app would simply supply the sound-effects to make the whole experience far more enjoyable for the kids, thereby stimulating a love of reading in them, and of course there was a demonstration to come, and for it the entrepreneurs had brought a book made for the event, ‘Novel Effect Goes To Shark Tank’.
Mark launched the app in seconds and proceeded to read from the book, which featured a couple of entrepreneurial sword-fish pitching a business idea to some fierce sharks. The story had a bad-guy, in the form of Kevin, and plenty of sound effects to keep things interesting. The children seemed to enjoy it enough to forget about the sharks, the studio, and everything else around them for a few minutes, and the story concluded with the sharks making a flood of offers to the happy sword-fish, but would the fiction of the tale match the reality in the Shark Tank?
After the quick demonstration the children left the tank, and Melissa finished off the pitch by telling the sharks that with their help, she and Matt could scale the Novel effect business up, and bring the magic of sound-assisted story-time to children around the World.
Mark Cuban was the first shark to speak, he wanted to know about Matt and Melissa’s backgrounds. Melissa had been a graphic designer before Novel Effect, but Matt had actually been a patent attorney before starting the business. ‘That’s super convenient for you’ remarked Lori Greiner, and it was. Matt confirmed that the whole Novel Effect concept was patent protected, and the Sharks could at least trust his word on that. Lori asked how the original idea had come about, and Melissa explained about that inspirational baby-shower and the friend that included sound effects while reading to such great effect. She told the sharks about selling the family home after their daughter had been born, and moving across the country to Seattle, to launch the Novel Effect business.
Kevin had enjoyed the story, even if he was the bad guy in it, but he wanted to hear another one. He couldn’t help mentioning the $5 million valuation on the company and wanted to know if there were already other investors in the company. Matt told him that so far $620,000 had been raised, which impressed the sharks. $500,000 of the investment had been in the form of a convertible note, essential a short-term funding loan for a start-up business that doesn’t have to be repaid in cash, and doesn’t accrue interest, instead, the value of it converts into equity in the company at a later date.
Matt and Melissa had also received funds from the Alexa Fund, Amazon’s venture capital funding program, which promotes innovation around the voice-recognition features of Alexa. Matt explained that the Novel Effect software could be used with any voice service, and Amazon had recognized that it had great potential to be used with a system such as Alexa, to merge Novel Effect sound effects with any book read aloud.
Guest Shark Sara Blakely loved the idea. The Spanx CEO was a mother herself, but she wanted to know how easy the system was to use. Matt explained that once the app was downloaded, users could select a book that already had a pre-recorded ‘Sound-scape’, and simply launch it while reading. Lori asked how many books were currently in the Novel Effect library, and Matt told her that there were 75 books currently, but that was being built up. Mark Cuban inquired if the business had to pay a license to publishers, but patent attorney Matt assured him that adding sound effects to books did not require any form of license.
So far things were going well, but after Lori asked how money was being made from the Novel Effect business, Matt admitted that the company was still pre-revenue at the current time, which is never good news for the sharks, particularly for a business with a $5 million valuation. Matt began explaining that the future income for the business would be from a subscription model, but Mark asked how customers would be acquired in the first place. Matt explained that if Novel Effect could be promoted in book-stores, with a sticker on selected books advertising that Novel Effect sound-scapes were available for that title, customers would find out about the company that way, but Mark saw nothing but problems with that idea.
Mark thought that for the book-store idea to work, an enormous conversion ratio would be needed, and as book-store sales were declining anyway, that made success through them even more unlikely. Matt quickly pointed out that Novel Effect was also partnering with Amazon, with the app being linked to books on the site. Mark still wasn’t convinced, but that wasn’t the only plan. Matt explained that they didn’t intend to be the only company producing sound-scapes for the app, instead, they would license the platform, creating a second income stream by allowing other companies to use the Novel Effect software for more titles, but Mark was unconvinced,
Mark thought the whole concept was a huge gamble, even if Novel Effect produced great content, there was no guarantee that people would search for an app, download it, and use it just because they had seen a sticker on a book. He told Matt and Melissa that they were underestimating the challenges of attracting new customers, and because of that, he was out. Daymond John was also not feeling the magic of Novel Effect. He compared the $5 million valuation of the company to the cost of getting ‘Earth, Wind and Fire’ to come and perform in person at his child’s birthday party, and Daymond obviously thought that would be a far more magical event. Daymond was out too.
Kevin O’Leary had tried something similar with The Learning Company. Back then the technology had been audio CD’s to accompany books, but the scheme had not been successful. Kevin told Matt and Melissa that not only did parents have a 60-90 day window when they made a decision about investing in reading-aids for their child, but the lifetime of the product was only about 36 months at a maximum. Customer acquisition costs had been high, and the whole project had been unprofitable, which to Mr. Wonderful was ‘Hell on Earth’.
Lori saw things differently. She believed technology was more suited to interactivity these days and thought the concept could be far more successful with today’s voice-recognition technology, but Kevin was convinced that his experience of the children’s market, which is comprehensive, carried more weight than Lori’s opinion. He and Lori argued briefly, but he quickly dropped out as Lori announced she was interested enough in the idea to make an offer.
She told Matt and Melissa that the idea behind Novel Effect was as ‘Cool as cool can be’. Lori thought the other sharks were being too negative about the potential challenges of the business, and she was prepared to make an offer. Lori offered the $500,000 investment, but in exchange for 20% of the company. Melissa looked slightly concerned, suggesting that she and Matt were unwilling to give too much equity away. Matt seemed to confirm that when he quickly made a counter offer, offering Lori 12.5% of the business in exchange for the investment.
Sara asked Lori if she would be interested in going into a deal together, and Matt liked the idea. Lori considered it but told Matt and Melissa that as two sharks would offer more advantages, they would also require more equity. Once again Melissa and Matt exchanged a worried look, and it was clear they were unhappy to offer a bigger stake in the business. Lori changed direction entirely and told the entrepreneurs that they knew what she could do for them, and it was clear that Lori was trying to exclude Sara from the deal.
Sara the guest shark was being sidelined, but she offered no objections as Matt asked Lori if she would consider a 13% stake as a single partner. Sara still offered no alternatives while Lori made one final counteroffer, suggesting a 15% stake in exchange for the $500,000. Matt and Melissa thought for a moment, but although they still appeared less than overjoyed at giving away more equity, they accepted Lori’s deal with no further discussion. Matt and Melissa left the tank and declared they took Lori’s ‘Great deal’ before they lost the opportunity, while Kevin mocked Lori for throwing guest shark Sara ‘Under the Bus’, but ultimately, Lori found herself left out in the cold on a Novel Effect partnership too.
Novel Effect Now in 2018 – The After Shark Tank Update
Matt and Melissa have continued their partnership with Amazon since their appearance in the Shark Tank. They featured in the first Techstars Alexa Accelerator program, which allowed them to make new contacts within the voice-recognition industry to improve their system, and although they still offer the Novel Effect app as a free download from the company website, they have now launched the Novel Effect Book Club, a subscription service that allows customers to have Novel Effect supported books delivered to their door every month.
Currently, the Novel Effect app is for IOS only, but an Android app is due for completion later in 2018, and an Alexa Skill is in the pipeline too. The Novel effect library of sound-scapes has now grown to over 150 titles. In May 2018, Novel Effect announced that a further $3 million had been raised in funding, and since the Shark Tank appearance, over 50,000 downloads of the app have been made. In addition, Novel Effect won a Webby Award for ‘Best Integrated Mobile Experience’ in early 2018, and in an interview with GeekWire, Matt announced that further revenue streams and models were being developed.
However, Lori Greiner will not be a partner of the company. In an interview with Recode, Matt revealed that after filming was completed, negotiating the terms of Lori’s offer led him to realize that he could get a better deal from other investors. It appears that Lori’s insistence on that extra one or two percent equity in the tank may have ultimately left her to be ‘Thrown under the bus’ too, and in the GeekWire interview it was confirmed that no deal with Lori had been completed. With $3 million in funding, Matt and Melissa are no longer short of development funds, and they plan to use the capital to grow the Novel Effect team, expand the technology to new products, and move the Novel Effect app to other platforms.
The Novel Effect story is only currently in its first chapter, and it seems that a shark partner will not be part of the storyline in the future, but with their continued involvement with Amazon and the Alexa program, and the exploding popularity of voice-recognition innovations, Novel Effect may end up as a blockbuster, but only time will tell.