If a digital-billboard and a vending machine really, really loved each other and had baby, it would look like a Vengo — the revolutionary brainchild of Brian Shimmerlik. His wall-mounted, flat-screen, touch-operated computer displays ads and dispenses anything from candy bars to lipstick to USB cords.
New York City-based Vengo rolled out its first machine in February 2013 at The Village Pourhouse on 11th Street and 3rd Avenue in NYC. Each machine sells for $3,100. Before Shark Tank, Vengo was in 250 locations, generating $100,000 a month in revenue. With 15 employees, the company has been operating at a loss.
Vengo Labs’ founders Brian Shimmerlik and Steven Bofill appeared on Shark Tank in March 2016 in hopes of raising a jaw-dropping $2 million for 12.5% of their business, valuing it at $16 million. FUBU founder Daymond John said the valuation was “insane” given that they’re losing $300,000 for the year but should break even next year. Computer security king Robert Herjavec thought the business model was unclear. Is a display advertising company or a vending machine?
Shimmerlik and Bofill settled on a loan-shark deal after some back and forth with educational software mogul Kevin O’Leary and QVC queen Lori Greiner. O’Leary and Greiner agreed to loan the company $2 million at a 7% interest rate in exchange for 3% equity — a great compromise. O’Leary initially wanted 6% equity and Shimmerlik’s first “final offer” was 2.5%.
Before Shark Tank, the company had secured investments from Brad Feld, Joanne Wilson, Queensbridge Ventures (co-founded by Nas), Gary Vaynerchuk, Kensington Capital, Box Group (co-founded by David Tisch), Armory Square Ventures, Vegas Tech Fund (Tony Hsieh’s fund), Jens Molbak (founder of Coinstar), and Scout Ventures.
Before starting Vengo, Shimmerlik worked as an analyst at JP Morgan and senior associate Emigrant Bank. He earned an MBA from New York University. Shimmerlik invested $10,000 of his own money in the business on top of winning $17,500 from the New York City Economic Development Corporation (NYC EDC) in 2012. In addition to getting $20,000 from his my old boss, he raised $1 million in seed capital from private investors.
D&K Engineering San Diego, Calif., a leading product developer and manufacturer, produces the machines. They’re then distributed by Vengo’s operations partners.
Vengo’s reach spans four continents, selling products of some of the world’s biggest brands. These include Revlon (REV), Estee Lauder (EL) and Kiehl’s. Shimmerlik aims to put on the market 100,000 machines within five years. Vengo is trying to develop larger machines and ones that operate outdoors.
Shimmerlik explains how he developed the Vengo and the challenges he overcame.
Big Solution to a Small Problem (Or Is It the Way Around?)
Ky Trang Ho: How did you come up with the idea for your business?
Brian Shimmerlik: While I was at school I was searching for something to start. I went out for a few drinks with my school friends and was coming home in a taxi late, late at night. I wanted to go straight home but I was hungry. I wanted snacks in my taxi, now.
I started working on a vending machine that could go into every NYC taxi. I put together a business plan and researched the market. I got myself a huge meeting with one of the big taxi owners in NYC and pitched my idea. He told me to get lost.
I went home that day (Nov. 4 2011) and wrote a letter to the NYC gov. I said, “Hey! I’m a resident and a student, I’ve got this idea, innovation, tax revenue, etc.” While I was on the site I found that the NYC Economic Development Corp had its own business plan competition, called NYC Next Idea. I applied. And out of 270 companies, we took down the whole thing. We won $17,500, which was a ton of money to me. The concept went viral from there.
I found Steven Bofill, my incredibly talented partner and co-founder. We put together a prototype. We quickly realized that the brands that make physical products were really excited about our concept, not just in the taxi, but everywhere. I started demo’ing the prototype around town and put together a $1 million seed round.
Not only did we access the capital but also partnered with some of the best investors in the world. Our investors include Brad Feld, Joanne Wilson, Queensbridge Ventures (co-founded by Nas), Kensington Capital, the founder of Coinstar, David Tisch, Gary Vaynerchuk, Armory Square Ventures and more. We pivoted from TaxiTreats to Vengo and began deploying “Vengos” to colleges, gyms and hotels.
When we got started we weren’t solving a massive, pressing problem. We were trying to make the world just a little more fun and convenient. As we partnered with some of the best brands out there and learned about their needs, we realized that the world is massively changing.
Consumers are empowered with technology. They control what messages they are exposed to. They have instant price transparency on any item. They can get almost anything delivered to them. As a result, people are going into physical stores less and less. Some reports from major retailers are saying up to 50% less versus just a few years ago.
So the brands that make physical products are really interested in reaching consumers outside of the store. Vengo sets up their product in the places where consumers’ actually spend their time and actually feel the need to use the product. Then we couple the product with an interactive media experience via the Vengo screen. We manage the network remotely.
Our market is any high-quality college, gym or hotel anywhere in the world. I thought this would work because I, as a consumer, would want it. Why not!
Ho: How did you go about making a prototype, sourcing the materials and finding a manufacturer?
Shimmerlik: I was very lucky to connect early on with my co-founder Steven Bofill. Steve and I have very complementary skills and he takes the lead on all things product-related. Steve used to work on advanced and prototype aircraft. So his skillset was perfectly tuned for rapid prototyping to production while minimizing costs.
For example: Steve designed and 3D printed some of the components to demonstrate design concepts and prove out the design while at the same time lining up suppliers with estimates to make sure what he was designing not only worked but was cost effective. He got industry advice from the potential suppliers competing for the bid on how to make whatever he was designing a little strong/cheaper/easier to produce. In summary, Steve knew exactly how to get the best, most cost-effective design done and out the door in a short timeframe.
Steve also utilized his network from his career in aerospace to help put our first and sub-sequential prototypes together. He had a friend who owned a metal shop put together the outer casing and advised us on the details to make it look great. He made it a point to utilize off-the-shelf components wherever possible.
Steve runs the show on most things product related with tremendous skill and thought. If there was something that was out of his comfort zone, he’d pull in an expert to advise and help. Case in point: early on he recognized the need for an electrical and overall systems engineer to compliment the mechanical side of things and brought in his father, Brian Bofill, who has more than 35 years of experience in electrical and systems engineering.
Brian Bofill has also been an incredibly key player in Vengo. Thanks to their work, we have fully institutionalized the product, the supply chain and the usability for our partners.
Ho: What hardships did you encounter in developing and launching it?
Shimmerlik: Tons! My whole team is outsiders to the vending industry and so we really had to learn as we went. Our first prototype barely worked. But it looked great. We were able to demo it. It showed the progress we needed to attract capital investment and get the resources to build a smooth, commercial product.