Solid Business Wheeled Out of the Den – With an Invitation to Return

When this trio of entrepreneurs entered the Den last week and presented their business, it was more than a little surprising that they did not leave with a deal, despite being one of the best businesses to appear on the show.

Christian Bagg, Michaud Gearneau, and Jeff Adams of Icon Wheelchairs entered the Den asking for $500,000 for 20% of their business, giving themselves a valuation of $2.5 milion. With no sales to back up the valuation, the trio was in for a rough ride.

First, however, they demonstrated their product – an affordable wheelchair that’s fully customizable, and is more comfortable than traditional wheelchairs. As one of the trio is a Para-Olympian, and another is also a wheelchair user, they understood the need for their product, and spent significant amounts of time developing it right.

When questioned about barriers to market that would prevent competion, the three were open in that there really aren’t any. Not really a problem, as long as it’s acknowledged and prepared for. Marketing? They knew how to go about doing that.

What they lacked, though, were sales. They had none, just a prototype. No production lines, but aggressive sales projections.

Therein lay the problem. The valuation was so high that at a $500,000 investment, the equity to match would have cost them the company. When asked about that, they responded about future value, something investors don’t want to hear about. When they put money into a business, it’s at the current value, not a future projected value – even if that projection is accepted to be fair.

All five dragons agreed that the product was good. All five agreed that the valuation was way too high. Some offered their contacts, because they believed in what the trio were doing. The business was asked to return at a later date, when the money and valuation agreed.

The problem, though, is that the business needed the money to get into production, but not in exchange for equity. Without being able to reassess that, there was really no way for the dragons to treat it as a serious business. As a charity, it might have gotten the money, but as the solid business idea that it is, it was over-rated – for the time being.

  • Jeremy

    sounds like they need a line of credit, not an equity deal.

  • http://blog.optimalupgrades.ca Elie

    Line of credit, loan, something like that. Certainly not equity when the amount to be borrowed was worth as much as the company in a generous valuation might have been worth.

  • http://www.facebook.com/profile.php?id=718790595 Rafi Hecht

    A surprising amount of people just “don’t get” selling a business. You sell what your business is already worth in terms of profit, not on what it will potentially make. On occasion you will see someone buying based on revenue potential, but generally speaking this is not the case.

    You will not earn a million dollars for your business unless you justify it with a million dollars in profit.

    Yet, clueless business owners get all starry-eyed about it and need to be brought back down to earth by those investing with their hard-earned cash.

  • http://blog.optimalupgrades.ca Elie

    Precisely – a sale is always made at the price of present day value. The reason for the sale in the first place would be because of the potential for future value, but that does not dictate price, just motivation for purchase.