Wham-O's Offer to Buy Sprig Toys: Selling in or Selling Out?

By Sarason, Yolanda; DeTienne, Dawn R. et al. | Entrepreneurship: Theory and Practice, July 2014 | Go to article overview

Wham-O's Offer to Buy Sprig Toys: Selling in or Selling Out?


Sarason, Yolanda, DeTienne, Dawn R., Bentley, Catherine, Entrepreneurship: Theory and Practice


Sprig Toy's mission was to deliver eco-friendly, battery-free, paint-free, kid-powered toys. The company had seen a meteoric rise since its beginning in 2007. Now, however, the founders were at a crossroads. They needed an immediate influx of capital, and on the table was a purchase offer from Wham-O[R]. As social entrepreneurs, their decision was not purely financial. They had wanted to start a company that would change both the market (how kids played) and the industry (how toys were manufactured)--but now, they had to make a decision regarding the offer to buy their company, and they worried whether they were "selling out."

Welcome to the World of Sprig

It's a place where kids power the fun, which fuels their imagination. It's where batteries stay out of landfills and kids get off the couch. Sprig's adventure vehicles and character guides become favorite toys and constant companions--they're too busy playing to gather dust on the shelf. Active kids, happy parents, healthy planet. What a wonderful world.

Sprig Toys, Inc., 2009

It was the fall of 2009. The founders of Sprig Toys--Justin Discoe, David Bowen, and Chris Clemmer--sat contemplating an offer from major toy manufacturer Wham-O[R] to purchase their company. They were gathered around a table in their office--a converted house in downtown Fort Collins, Colorado, full of Sprig toys in different stages of development. The three reflected about the company's meteoric rise and their mission to "keep kids active and the planet healthy." They remembered how in 2007, Chris and David had packed their respective families and moved from opposite coasts to realize their mutual dream in the heart of the Rocky Mountain West. Here, they had created their top-secret, high-tech toy laboratory--and designed an exciting line of battery-free, eco-friendly, paint-free, kid-powered toys sure to dazzle even the most discriminating preschoolers.

Rather than use traditional funding methods to obtain the necessary the start-up resources--such as incurring debt or offering equity capital--the founders bootstrapped (1) the company, going without salaries for the first year and borrowing from or cashing in their 401 (k)s. Eventually, because of the need to develop prototypes, the Sprig founders sought funding and secured $1 million in support from an initial round of investors committed to Sprig product designs. The company grew rapidly, and their rapid burn rate (2) required them to seek an additional infusion of cash in 2008. After speaking to many types of investors, they accepted an initial commitment of $4 million from venture capitalists; however, the release of this money was tied to Sprig's achievement of certain milestones. The founders were unable to meet these milestones, due in part to the rapidly sinking economy as well as manufacturing decision errors that cost them approximately half a million dollars. Missing these targets meant that they would not receive the next stage of funding from the venture capitalists. The company was nearly out of money. Again, the founders went without a salary while still trying to meet the payroll of eight employees. They were struggling for survival and knew they needed to do something immediately.

Justin, David, and Chris contemplated the decision before them. Should they accept the offer from Wham-O to purchase their company? They were concerned that Sprig Toys, which had begun as a protest to the entire toy industry, would become integrated into a company that represented the polar opposite of what they had initially envisioned. They tried looking at their situation from several different angles. Financially, the offer was considerably less attractive than it might be if they were given more time to achieve milestones and consider a sale to a more socially driven toy company. Additionally, the three were going to be the last paid, and the payout to angels and investors would be tied to the subsequent earnings of Sprig Toys. …

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