Den Pitches Rise and Fall

There’s something interesting about the show Dragons’ Den that seems to appeal to a certain type of business person. People come on the show with their businesses, hoping to leave the set with a potential investment from one of the five dragons, yet in the average show, only 2 businesses will get lucky. Having watched the show for a few seasons, I’ve started to notice a change in the businesses.

There are a few types of businesses that make appearances. There are the truly good businesses, with solid number behind their smooth pitch, realistic expectations, and they generally walk away with a deal. These are the businesses that could have acquired an investment elsewhere, though the relatively easy access of the dragons leads them into the den. Not that getting the investment is easy, but getting the investors to listen is a lot more straight-forward.

On the other end of the spectrum are the spectacularly bad businesses, with lousy pitches, no numbers, and unrealistic expectations in regard to the value of their business. While some get deals, it is unusual, and often not because of the merit of the business, but rather to support some other cause (Brett Wilson is often the investor in those cases).

This week, one business arrived with a new reason for needing money – speed.

Sometimes, even a profitable needs money for rapid growth, for the simple reason that expansion happens in one of two ways. Either it’s done in bits and pieces as the cash flow in the business allows, or it’s done in a sudden spurt, in which case, outside financing will be required.

John Rowe and Justin Rowe from Honibe understood this. Their dehydrated honey business, offering a unique product with wide appeal, was already quite profitable. They could have continued along their path, slowly expanding into new markets as their internal finances allowed. However, they wanted to expand into the US, and for that, they needed money – a lot of it.

Robert Herjavec felt that the request for money was perhaps short-sighted, and that giving up equity for the cash would be a decision they would eventually regret. But the other dragons didn’t care about that – it was a good business, profitable, and the money was being directed toward something likely to provide a return. They were willing to back it to the tune of $1 million, split between an investment and an operating line of credit.

John and Justin took the offer, because $1 million is not an offer to walk away from lightly. I suspect that following their appearance, they’ve taken a look to see if they could acquire alternative forms of financing that would result in them keeping a higher percentage of teh company. However, they also recognized the value in having the dragons as major stakeholders in the company, and the eventual advice and experience they would have access to once the deal completes.