Say No to a Million Dollars
I heard someone say no to a million dollars the other day.
I was watching Dragons’ Den on CBC, in which entrepreneurs can pitch their ideas to 5 wealthy investors. If you’ve never watched the show, you can check it out and watch old episodes on their site.
Caution: Spoiler Alert
A pair of entrepreneurs came on pitching their idea, a website called UseMyBank, which allows its users to make payments directly from their bank accounts, without providing their banking information to client sites. Sound familiar? It’s another version of PayPal, except it works like a debit card, not a credit card.
They were asking for a million dollars for a 5% stake in their company, essentially stating that their company was worth $20 million. To back that valuation, they had current revenue of about $5 million in the previous year, of which about half was profit for them.
The problem they were facing is that there are several competitors with similar ideas to their own, and the founders, Brian Crozier and Joseph Iuso, needed a lot of money to help get a jump on the competition. Each existing site offering the service was specific to a particular country, and Brian and Joseph were looking to become the standard processor in as many countries as possible.
This was in order to facilitate their exit strategy – where a large payment processor would buy them out on account of the size of the market they control. However, to reach that point, their company needed to be able to expand quickly.
There was a deal offered, oddly, from all five investors. Each would put up $200,000 in exchange for 40% of the company – dropping the valuation to $2,500,000. A counter-offer of 15% equity for half the money, with the balance as a loan was met coldly by the five Dragons.
Brian and Joseph refused the offer.
Knowing that the episodes are filmed months in advance, at the time of refusal, getting a million dollars from anyone at any terms was next to impossible. Even now with the economy improving, their request for funds would be hard to acquire.
However, they turned down the offer because, in their opinion, the numbers didn’t match. The argument was about the value of the company. It may have been worth $20 million. It may have been worth $2 million. But with the numbers that far apart, coming to an agreement somewhere in the middle was nearly impossible.
I visited their site, and frankly, I wasn’t impressed. Granted, I can’t see the workings behind the scenes, but the look and feel to the site did not inspire me with confidence. I don’t think I would use their service, and I believe that the concept they’re operating on is fundamentally flawed, and that there is not a demand for their service, certainly not at the level of $20 million or more.
However, based, on that, were I to have received an offer like the one posed in the Den, I would have taken it. You can always back down later. But when an offer like that is on the table, you take it, and worry about the details later.
How about you? Would you have said no to a deal like that? Could you have left that much money sitting on the table?