With perhaps the most gutsy presentation on Dragons’ Den from CBC so far, two friends made an audacious offer, and secured a deal. Interestingly, however, Arlene Dickinson, the marketing maven, did not participate in the deal, despite the fact that her background might be exactly what the entrepreneurs needed.
John Marr and Jonathan Mackenzie of Mackenzie and Marr Guitars came on the show with a handmade guitar that retails for about $1,000. In a daring attempt to prove the quality of the guitar, they had Kevin O’Leary do a blindfold test of their guitar against a $5,000 guitar made by an established brand. When Kevin was informed that he had chosen the $1,000 guitar as the better instrument, he was sold.
The two friends were asking for $35,000 for 35% equity – valuing their business at the price of 100 instruments (of course, costs need to be subtracted, but still, not a large amount). Their plans for the money included moving manufacturing to China, and increase their ability to build more of the instruments.
The catch is that they are selling their guitars solely via their website, which means that potential buyers aren’t going to be able to try out the guitars. Therefore, they will need endorsements in order to encourage potential buyers that it’s worth the risk. Arlene Dickinson, concerned about precisely this issue, declined to invest. Likewise, Robert Herjevec declined for similar reasons.
Jim Treliving, Brett Wilson, and Kevin O’Leary decided to put in a group offer, but not at the terms on the table. Each of the three investors would put in $5,000 for 5% equity in the company. The balance of $20,000 would be given in exchange for a royalty of 5% once the initial investment had been paid off. Until then, the Dragons wanted a 10% royalty.
John and Jonathan felt that 10% was too steep, and wanted to start at 5% from the beginning. The Dragons countered back with 7% from the beginning, with 5% once the investment had been repaid. The offer was accepted, but not before it looked like the two friends would talk themselves out of a deal.
Putting your product to the test on national TV is a big risk, especially when you can’t do a dry-run beforehand. But when it works, the risk can prove to be very rewarding!