Dragons’ Den: Series 12, episode 2
A historic day in the Den as two entrepreneurs secure the best-ever terms for their business…
History was made in the Den this week, after Asi Sharabi and David Cadji Newby walked away with a bumper £100,000 investment from Piers Linney in their fast-growing children’s book business – having given away a record-low 5% stake in the company.
Elsewhere, Den veterans Peter Jones and Deborah Meaden joined forces to back ambitious cereal company SPOON, whilst pet food entrepreneurs Daniel Ayre and Matt Cockcroft entered the lift with nothing having turned down all the offers they received.
Asi Sharabi and David Cadji Newby
Proposition: Personalised children’s books
Investment sought: £100,000 for 4% equity
Investment received: £100,000 for 5% equity (Piers Linney)
Anyone familiar with venture capital will know that the amount of equity demanded by the Dragons in exchange for their backing is much higher than in the outside world. Giving away 20, 30 or sometimes even 40% of your business to an angel investor might seem like business suicide outside the Den, but the exposure, connections and PR of having a Dragon backing your business arguably make it worthwhile. So when Asi Sharabi and David Cadji Newby walked into the Den offering just 4% equity in exchange for £100,000 investment in their children’s book business Lostmy.name, the pitch seemed like a non-starter – but the pair defied all the odds to walk away having conceded the smallest amount of equity ever seen on the show.
The pair, along with two other co-founders, had produced a range of appealingly-designed children’s books which were uniquely customisable through their website, allowing parents to have a book produced with their own child featured as the main character. Peter Jones was visibly bored during their pitch, but his mood suddenly changed when the entrepreneurs revealed a hugely impressive set of financials – since launching in October last year the company had sold more than 30,000 copies of their book across 60 countries, generating a staggering £460,000 in the process.
The duo had overcome initial scepticism to win over the Dragons with their beautifully-designed product and excellent financials. However, they had all been visibly shocked at the revelation the pair were offering just 4% of their business for the £100,000 investment they were seeking, and the pitch took a dramatic turn for the worse when they revealed it was part of a wider seed investment round – meaning the business’ valuation was fixed and there was no scope for negotiation. Matters were complicated further when they revealed an existing VC backer held preferential shares in the business, something they were not offering to the Dragons. It was a development which was enough to see Piers Linney as the sole Dragon still in.
Bannatyne summed up the sentiment in the room when he pointed out the PR element of having a Dragon backing the business, and the connections they could offer, added value to the investment which wasn’t reflected in the stake they were offering. Such a meagre deal was always going to be a tough sell to the equity-hungry Dragons, but the business clearly had huge potential, and Linney made Den history when he concluded a deal for 5% of the business, conditional on the VC backer giving up their preferential shares. The deal has subsequently gone through.
Start-up business lesson: If you have the figures to back up your valuation of the business, don’t concede too much equity just to see the deal go through.
Jonny Shimmin and Annie Morris
Company: SPOON cereals
Proposition: Bespoke ready-to-eat healthy cereals
Investment sought: £50,000 for 10% equity
Investment received: £50,000 for 30% equity (Peter Jones and Deborah Meaden)
Some markets in the UK are so notoriously competitive that setting up a new business in the space is regarded as a non-starter by default. This is the case for the UK’s breakfast cereal sector – whilst it is worth a huge £1.9bn, it is also dominated by several multi-national brands known for aggressively shutting out new competitors.
It was no surprise, then, that despite having excellent branding and a clear ethos for their bespoke eat-on-the-move cereal bowl company, young pair Jonny Shimmin and Annie Morris faced an extremely sceptical panel of investors. Indeed, it was such that Piers Linney, Duncan Bannatyne and Kelly Hoppen bowed out almost straight away, after hearing the pair’s plan to move into the extremely congested wholesale retail market with what Linney had called a “cottage business”. There was further consternation when they revealed a truly dire cashflow situation – with both entrepreneurs living off their savings, the business would shut down in just three months without external investment.
However, the entrepreneurs seemed unfazed by the Dragons’ criticism, insisting the strength of the brand would see them through, and further argued the huge value of the cereal sector would provide ample opportunity for growth. Their confident approach in the face of all the odds paid off when Peter Jones stuck his neck out with an offer for all of the money – but for a vastly inflated 30% of the business, reflecting the substantial amount of hands-on work needed to develop it. Deborah Meaden followed suit with exactly the same offer, leaving the pair with a straight choice between the female investor’s marketing credentials and Jones’ peerless retail connections. In the end, the duo managed to secure the services of both after proposing the idea of a joint investment, and are now well placed to have a serious go at cracking the cereal market backed by two of the Den’s most well-connected Dragons.
Start-up business lesson: Unshakeable faith in your product will go a long way in winning over investors, even if your business has flaws.
Daniel Ayre and Matt Cockcroft
Proposition: Naturally dehydrated healthy dog food
Investment sought: £40,000 for 10% equity
Investment received: None
When even the gruff Duncan Bannatyne calls a pitch one of the best he’s ever seen in the Den, you know it’s a company worth noting. Yorkshire entrepreneurs Daniel Ayre and Matt Cockcroft were pitching their “naturally dehydrated” pet food Pure, which used a unique process they claimed kept the food as close to raw as possible – but with a virtually limitless shelf life. The pair delivered a nerveless performance in the high-pressure environment of the Den – even going as far as gulping down a few mouthfuls of Pure at Peter Jones’ request – and revealed promising growth since launching in 2013, with turnover of £35,000 and deals with more than 100 specialist pet stores across the UK. Despite showering the pair with compliments, Peter Jones, Piers Linney and Duncan Bannatyne all ruled themselves out as none felt they could add value to the business.
Having backed ice-cream flavoured dog treat Billy & Margot on the show in the past, the pitch seemed tailor-made for Deborah Meaden, and she duly arrived with an offer of all the money for 30% equity. However, she also told the pair she would eventually have to merge their brand with her previous investment to avoid a conflict of interest. Kelly Hoppen was the last to show her hand, and was so taken with the business she decided to undercut Meaden with an offer of all the money for just 20% – despite not even owning a dog.
The Den then saw one of the rare moments when the spotlight turns on the investors themselves, with both Meaden and Hoppen touting their respective credentials to compete for a stake in Pure. Despite demanding a whole 10% more of the business than Hoppen, leisure entrepreneur Meaden argued her connections in the industry would “open doors instantly” for the pair; after a hurried conference, the pair admitted to favouring her offer. However, the impressive duo astonished the Den by turning down both Meaden and Hoppen, saying “it just didn’t feel right” giving away such a large stake early in the business’ life. Time will tell whether Ayre and Cockcroft will come to regret turning down a Dragon, but if their evident passion, strong product and promising business growth are any indication, this won’t be the last time we hear of Pure.
Start-up business lesson: Sometimes the terms a backer is offering just don’t make business sense – don’t be afraid to walk away from a deal that isn’t right for your company.