The Dragons Decide

13 Horror Limited

• The entrepreneur:  Andrew Hannon
• Investment: £50 000 for a 20% share
• The idea: Andrew describes himself as being in the business of fear. He presents horror experiences through two self-published books of short stories. The first book is The Magic, according to Andrew it takes between 5 and 10 minutes to complete and is ‘terrifying’. The second book The Dare, is done as a group as ‘it’s too scary to do on your own’. It takes one hour to complete.
• What the Dragons had to say: The Dragons were confused about how the books actually scared people. Reading one of the short stories ensued in fits of the giggles instead of the promised terror. They were also very confused about what the business actually is. It took them a while to come to grasp with what he’s trying to do. They were also unclear as to how they would get a return on their investment and why Andrew even needed the investment, as he had already successfully sold a large number of books. The Dragons weren’t really clear about why Andrew needed the investment when he could clearly grow the business without it. Because they didn’t properly understand the business model, the Dragons felt they could only give money and not advice or market/industry knowledge. It’s important that investors understand the market that you’re operating in as they traditionally offer some sort of mentorship together with the investment. If they don’t understand what they’re investing in, they don’t feel in control. As a result, the Dragons weren’t willing to invest in the business as they didn’t understand what they would be investing in.
• What he did right: Andrew had a good grasp of his numbers and showed he’d generated a profit by selling 10 000 of his self-published books. He did have a plan to grow his business and generate returns for his investors. He managed to entertain the Dragons and made them laugh.
• What he did wrong:  The pitch started out with a slightly disturbing role play with someone hidden under the table, who then turned out to be Andrew. It was an unnecessary gimmick, designed to grab attention, but actually only served to confuse the audience. His presentation was confusing because it started out describing a parcel delivery business, which then evolved into his actual business. He didn’t really explain the business idea properly and how it would generate returns.
• Verdict:  No
• The lesson:  Have a clearly defined business model that lays out how the investors will see a return. You also need to easily and simply outline your business, plan, revenue model and industry – you want your investors to quickly grasp what you’re pitching.

Sweet Mandarin Restaurant

• The entrepreneurs: Lisa and Helen See
• The investment: £50 000 for a 20% stake
• The idea: The sisters require investment to grow their sauce business. The product contains no MSG or artificial colouring and is gluten free.
• What the Dragons had to say: The Dragons liked the sisters’ enthusiasm and polished pitch. It was impressive that they already had one supermarket chain showing interest and that they were supplying Chinese restaurants. The sauces tasted good and were well presented. One Dragon questioned the sisters’ USP, which was perhaps not clearly demonstrated. The Dragons also questioned whether they were running a restaurant or a sauce business and felt that they hadn’t demonstrated sufficient levels of uniqueness, and that because both were selling under the same name, there could be brand confusion. One Dragon demonstrated a concern that the sisters wouldn’t get the margins they were hoping for, because the supermarkets would squeeze them for better prices.
• What they did right. The sisters knew their market and its value. They demonstrated that they’d already experienced good sales and made a profit, as well as presenting very impressive projections for the business going forward. They knew their cost and profit margin figures inside and out. They had just received accreditation and had firm interest from one retailer as a result. The sauce was already being supplied to Chinese grocers who supplied local restaurants. This contract is worth £250 000. They were already running a successful and profitable restaurant, indicating that they knew how to run a business. By saying that they had invested £10 000 of their own money (one sister’s life savings) in the sauce business, the sisters showed that they had skin in the game and believed in the venture. They clearly demonstrated that they have an investable business.
• What they did wrong: The sisters didn’t clearly differentiate between the two businesses or outline what sets them apart from the competition.
• Verdict: Yes
• The lesson: Prepare a polished presentation and know your numbers to impress investors.

Mamka online retailer

• The entrepreneur: Matthew Conneridge
• The investment:  £200 000 for a 10% stake
• The idea: Online retailer
• What the Dragons had to say: The Dragons felt that the amount asked for was excessive and based on an unrealistic valuation of the business – in fact, one Dragon remarked that for £200 000 he’d want 110% of the business. The high levels of stock held by the business also worried them – they questioned his control over stock management, and they were unhappy with his unusual stockholder arrangement, in which a partner held 20% equity in exchange for favourable discounts on products – what would happen if Matthew no longer wanted to stock that product? On the whole the Dragons thought that Matthew ran his online business badly. They felt that Matthew didn’t demonstrate that he was investable and they questioned his valuation of his business. They didn’t like the fact that he argued with the Dragons and that he didn’t listen to their advice. They said he hadn’t presented an investable business model and that he was ‘miles off’ in terms of the investment amount sought and percentage offered in exchanged.
• What he did right. Matthew showed that he’d been in business for five years and achieved £2 million in turnover, as well as a small profit. In that time he’d expanded into a bigger distribution centre. In his presentation he demonstrated growth in his business, had a good grasp of figures and mentioned his large stockholding – which ended up being his undoing with the Dragons.
• What he did wrong: He mentioned his shareholders almost as an afterthought and was vague about how the 20% stockholding arrangement worked. He failed to demonstrate a USP that would set him apart from the many other online retailers out there. All he could say was that his business was ‘better’. Matthew proved closed-minded to business advice offered by the Dragons. He was vague about how he came to his valuation of the business and was defensive while being questioned by the Dragons.
• Verdict: No
• The lesson: Don’t disagree with advice offered by potential investors. As an entrepreneur, you’re likely to pitch to a number of different investors before you find the right person who is interested in your business. View each pitch as an excellent learning opportunity, whether it’s to refine your next pitch, or simply draw from the knowledge of the investors you’re pitching too.

eBag – a desk in a backpack

• The entrepreneurs: Jill Haywood and Kelly Forbes
• The investment: £60 000 for a 10% share
• The idea: Fun pack children’s rucksacks
• What the Dragons had to say: The Dragons all loved the product and immediately saw the appeal for parents and kids. This enabled them to focus on the numbers and what Jill and Kelly had changed in their business model to drive more profit. They were satisfied with the response of ‘we reduced our margins, shipping and other costs,’ particularly as the entrepreneurs knew exactly what these margins and costs were, down to the cent. The Dragons who had children were enthusiastic about the backpacks, which were fun and practical and designed to appeal to children’s love of pockets and spaces to hide things.
• What they did right. The ladies innovatively managed to get a TV campaign for their backpacks without spending any money. They gave very clear statistics on their sales and turnover to date and knew their numbers inside and out. Their pitch was very professional. They needed the investment to have enough stock ready to meet orders locally and abroad. They also demonstrated that between them they had the necessary experience to qualify them to make a success of the current venture. They were also clear about the type of help they needed from their investors over and above money.
• Where they did wrong: Not much. Perhaps by looking to go global before establishing themselves firmly in the UK they were missing a step – but as they explained, that’s what they needed the Dragons for.
• Verdict:  Yes
• The lesson: Numbers are crucial – if you know your numbers, you’ll immediately grab – and hold – your investor’s attention. You may also have to choose between enthusiasm, equity or expertise when selecting an investor. If you know what your business needs, the decision will be easier.