Dragons’ Den: Series 11, episode 11

Another appearance from a Startups 100 company in the Den this week as well as two somewhat surprising investments

Episode 11

This week’s episode saw another Startups 100-listed business vie for the Dragons’ investment, with 2012 alumnus Erica Brodnock seeking backing for her children’s emotional intelligence start-up Karisma Kidz. Unfortunately for Brodnock, however, Karisma Kidz failed to repeat Mainstage Travel’s success on the show; all investors bowed out after expressing concerns about the business’ proposed multi-faceted revenue model.

Other businesses enjoyed more success, although the Dragons were anything but unanimous in their assessment of the products. Scottish entrepreneur Brian O’Reilly endured a torrid time in the Den after revealing a severely limiting share structure in his energy-saving device business. He eventually accepted a proposition from Piers Linney, although with a fundamental caveat attached. Luggage entrepreneur Jo Kerley also walked away with a surprising late deal from Duncan Bannatyne, despite the rest of the Dragons scathingly dismissing almost every aspect of her travel companion for young children.

Erica Brodnock

Company: Karisma Kidz
Concept: Educational toys and games to cultivate children’s mental health
Investment sought: £60,000 for 10% equity
Investment received: None

The pitch:

Seasoned Startups readers will be familiar with Erica Brodnock’s education start-up Karisma Kidz, which claims to teach children emotional intelligence through an app and toys licensed to parents and schools – the company placed in the 2012 Startups 100 and was one of our Adversity Award finalists in the same year.

Brodnock started well, explaining the business’ genesis through her own mental health struggles in a composed pitch. Explaining that one in four children experience anxiety or depression in their lives, with one in ten diagnosed with mental health issues, Brodnock showcased an in-progress web app that would be licensed to schools as well as a range of talking dolls which gave little motivational speeches when squeezed. As she explained, the idea was to build children’s confidence and wellbeing with ‘learning through play’; parents and teachers could monitor children’s activity on Karisma Kidz closely, and reward good behaviour with ‘Wow stars’ and ‘Charms’.

However, it was Brodnock’s plan to generate additional revenue through dolls and in-app purchases that proved the downfall of the pitch. This multi-faceted revenue model clearly represented an issue for Deborah Meaden, who heavily criticised the micro-transaction element in particular as unconscionable, growing only more furious as Brodnock fiercely argued her case. She ruled herself out, followed by Piers Linney, who also expressed discomfort at this aspect of the business model.

Kelly Hoppen and Duncan Bannatyne soon joined them.

Only Peter Jones remained. Of all the investors Jones seemed most on board with the aim of the business, and told Brodnock she could easily remove the divisive elements of the revenue model, leaving license fees from educators as the primary income of the business. But despite the entrepreneur indicating a willingness to change the business model following an investment from Jones, he too eventually ruled himself out, saying he would be more than willing to support Karisma Kidz as a social enterprise outside the Den.

Start-up business lesson: When pitching a business with a social element, it is vital to convince investors that your revenue model is compatible with the business’ social aim

Brian O’Reilly

Company: energyEGG
Concept: Motion-sensor device that saves energy by automatically switching off devices
Investment sought: £50,000 for 8% equity
Investment received: £50,000 for 30% equity (Piers Linney)

The pitch:

  • With energy prices skyrocketing, any entrepreneur who claims to have come up with an easy solution to cut down on bills is sure to pique investors’ interest, and so it proved for the nervous Brian O’Reilly – initially at least. His ‘energyEGG’ device claims to solve the problem of devices and lights being left switched on through a sensor that automatically detects when people are in a room, turning the power off when they leave.
  • O’Reilly claimed just one of his user-friendly devices could save families £70 per year on bills, and despite some initial scepticism about the technology it seemed he was winning over the Dragons. IT entrepreneur Piers Linney was particularly taken with it, and was impressed by the revelation that the devices were already selling in John Lewis and Tesco Direct.
  • But the pitch was crippled by O’Reilly revealing a severely limiting share structure in his business – high running costs had meant he had been forced to cede the majority of his business to outside shareholders, and he was left with just 40% equity.
  • Deborah Meaden made the point that for the equity she was likely to demand – 25% at least – he would be left with just a tiny stake in his own venture, something the Dragons agreed would always cause problems with an entrepreneur’s drive, ambition and motivation going forward.
  • This was enough to put off all bar Piers Linney. The technology entrepreneur shared the other Dragons’ concern about O’Reilly’s share structure but clearly felt the idea had value. He offered O’Reilly the full amount, but for a hugely inflated 30% of the business – and this offer came with a further caveat, in that the equity had to come from O’Reilly’s existing shareholders.
  • O’Reilly accepted the proposition, and left the Den facing the prospect of a further tricky pitch – this time to his existing backers.

Start-up business lesson: Don’t give away too much equity in the early stages of your business, or you risk putting off new investors

Jo Kerley

Company: JK Worldwide (PlayAway case)
Concept: Luggage containing embedded games and toys to entertain children on long journeys
Investment sought: £60,000 for 20% equity
Investment received: £60,000 for 35% equity (Duncan Bannatyne)

The pitch:

  • If ever a pitch demonstrated that investors can have serious differences of opinion about a products’ potential, this was it. Jo Kerley came into the Den with an evangelical pitch for her range of ‘PlayAway’ suitcases, which came apart to reveal an embedded board game and integrated activities to entertain unruly children on long-haul journeys.
  • There had clearly been a lot of time and effort spent on building the business, with Kerley having gone so far as to design a suite of companion characters based on endangered animal species to adorn the products. She also revealed that she had poured a lot of money into the business – in addition to a £19,000 overdraft, the company had taken on £179,000 in the form of a directors’ loan from friends and family.
  • A father of young children himself, Peter Jones seemingly echoed the feelings of the Den when he bowed out, telling Kerley it was ‘just a case’ and not the all-in-one entertainment solution she claimed. Meaden added to this; she was of the opinion that children would quickly tire of the embedded entertainment in the luggage and simply opt to pack their own diversions. Linney and Hoppen soon joined in ruling themselves out.
  • It looked like Kerley’s journey with the Dragons was about to come to a swift end, until the hitherto silent Duncan Bannatyne came out of nowhere to declare that he liked the product – following this praise with a surprise offer of investment if Kerley could convert the directors’ loan into equity.
  • She accepted, and left the Den behind in a state of shock that Bannatyne had decided to show his hand so late.

Start-up business lesson: If you know your product has potential, don’t let investors’ criticism destroy your confidence; there is every chance another backer will share your vision

Comments

(will not be published)