Dragons' Den Episode 9

I particularly liked the deal made last night on Dragons’ Den (if you haven’t seen it yet, click here to watch it online). There was another deal made during the show, between Clayton Hollingsworth and Brett Wilson, for $5000 ($500 of which Clayton received before he left the set), but while Clayton was providing a service, it was not an investment.

The deal which was more interesting was between Ross Lipson & Howard Migal of Grub Canada, and Brett Wilson (yet again). They came in asking for $200,000 for a 20% stake in their company. According to their site:

GrubCanada.com allows you to order food online from all your favourite restaurants for delivery or take out. We make ordering food, fun, fast, easy and much more convenient…

How It Works?

  1. Place order online for delivery or take out.
  2. Restaurant receives and confirms order via email.
  3. Restaurant prepares and delivers or you pick up your meal.
  4. You enjoy the hot, fresh food that just came so quickly and easily!

However, once they presented their numbers, it was clear that their valuation was priced too high at $1,000,000. In the month before their appearance on the show, their income was a mere $12,000. Extrapolating based on their growth and sales forecasting, their annual, after-tax income for that year would be about $70,000.

Ross and Howard, however, knew their company, and the numbers. Their membership was growing consistently between months. Sales were on the rise. Their biggest issue was marketing, and pushing their site around. While their valuation was high, consideration was being given for the fact that they were a young company, and still undergoing natural growth.

Kevin O’Leary started the negotiation with an offer of $200,000 for 50% of the company, to which Robert Herjavec joined in, but contingent on the willingness of Jim Treliving or Arlene Dickinson to join the deal. Arlene, however, was not interested, as she found herself attracted to the business smarts of Ross and Howard, but not the idea itself. Jim was also not interested on account of their business model.

The business makes money by taking 9% of the price of any food ordered from the restaurant as a royalty. Jim, as owner of Boston Pizza, found this to be quite steep, and felt that Ross and Howard would have a hard time getting franchises to be interested in working with them. As soon as Jim declined the deal, Robert backed out, and Kevin decided to withdraw his offer.

At this point, Brett made his offer – $200,000 for 50% of the company, and 1% of the 9% royalty being charged to the restaurants. The other dragons encouraged Ross and Howard to accept the deal – at a $400,000 valuation, they were still getting a higher valuation than their numbers justified, and they were not likely to do better from anyone else (not that there was any other deal to discuss).

The end result? Ross and Howard accepted the deal, and Kevin was left asking if this was the deal that got away from him.