Dragons' Den Episode 10 – A Review
Having watched Dragons’ Den for a few months now, I’ve developed a certain expectation for the show, and each episode in particular. There’s a certain sense of drama that is played out over the show, with the entrepreneurs fighting to win the coveted deal from one or more of the Dragons. As usual, there were 8 pitches on this week’s episode, and as is also becoming the fashion, there were 2 deals, and 2 follow-ups to past pitches on the den (one going back to last week and the holistic healer).
I’ll briefly recap the two deals here, but then I intend to focus on one pitch in particular which highlighted a potential pitfall for hopeful entrepreneurs.
The first deal was for a smoothie company (Euphoria Smoothies) which was started by a husband and wife team, Sam and Bisma Haider from North Bay, Ontario. They asked for $500,000 for 20% of their company in order to grow from 40+ stores internationally to hundreds of stores. Unfortunately, their product was not unique enough to interest most of the dragons, as there was a strong risk of another company starting up with a similar product. However, their pricing model was different, charging licensing fees instead of franchise fees, and making a margin on their branding. Different enough to interest Jim Treliving of Boston Pizza to invest, but for 50% of the company. While they had $2,500,000 in sales in 2008, the market for their product is quite flooded, the risk high, and sales alone don’t dictate a valuation.
The second deal reeked of sleaze. Mark Chadwick and Neil Currie of Vantage Wire, a company which provides real-time stock quotes, came out with 2 girls and a pitch targeted directly at Kevin O’Leary. The girls had nothing to do with the product, which insulted the other dragons, and showed the entrepreneurs to be out for the quick sale. It also undermined their integrity, which caused the other dragons to bow out.
Kevin, however, wanted to hear more – they had sales numbers to back up their valuation. However, Kevin looked past the girls and saw their lack of integrity, and therefore refused to trust them with his name. He therefore offered the $150,000 for 50% of the company, plus a 5% royalty to be paid until the investment had been repaid. This would allow him to protect his name from being mis-used (Kevin suggested he would likely rebrand the product entirely). Mark and Neil took the deal.
Now comes the more interesting part of the episode – two deals that failed.
Eric Brideau of Augenstern Diamonds came on the show asking for $275,000 for 30% of his company, which manufactured diamonds from human hair. In addition to having the dragons find his product creepy, he also made a crucial mistake – he claimed to have a personal net worth in excess of $10 million. With that kind of personal finances, his need for the dragons is highly questionable. While he claimed that the dragons could provide him with contacts that would help him rapidly grow his company, this also shows that he lacks a certain degree of trust in his own idea.
The other failed deal that provides an even greater lesson is that taught by Claire Copp from Vancouver, B.C. and her software called Trader II. She walked on the set without a demo, a valuation of $3,375,000, and no sales. She talked about the size of the market. She talked about growth forecasts. But she couldn’t talk about her product.
When pushed by the Dragons to explain her product, and how they would make back money, Claire explained how sales of a certain degree would earn back the investment. But she couldn’t explain why anyone would buy the product, nor why she had been unable, in the 20 years she had been working on the product, to sell any copies.
The lesson here is fairly simple. When an entrepreneur comes onto the Den, (s)he needs to be prepared to state the following:
- How much money do I want, and what am I prepared to give up to get it
- What is my product, and why would anyone pay for it
- Who is using my product today, and what are past sales numbers
- What is the investment money to be used for
An entrepreneur who cannot answer these questions should be asking themselves whether they’re in the right business in the first place. They can also expect that even if a deal is offered on the Den, it will likely cost them at least 50% of the company, because these questions are of the type that any leader of a company can answer about the company they run.