Dragons’ Den: Series 12, episode 3
The Den saw its fastest-ever offer this week as another two deals went through…
Following a pair of entrepreneurs securing the Den’s best-ever deal from Piers Linney last week, the Den saw another unexpected first on Sunday after Kelly Hoppen made an offer for loose-leaf tea business Teabox (now trading as PHOM teas) – before the entrepreneurs had been asked any questions.
Elsewhere, cider entrepreneurs Ralph Broadbent and Alex Dickson secured a good deal from Duncan Bannatyne following some brave negotiating, and Tom Harrington’s online estate agent pitch became unstuck when the Dragons pointed out some gaping flaws in his business model.
Philip Perrera and Omar Faraq
Company: Teabox (now trading as PHOM teas)
Proposition: Blend-your-own loose leaf tea
Investment sought: £50,000 for 15% equity
Investment received: £50,000 for 25% equity, dropping to 20% if performance targets met (Kelly Hoppen)
Even when a business has clear potential, entrepreneurs in the Den normally expect to receive a thorough grilling from the Dragons before the offers start coming in. Liverpool-based duo Philip Perrera and Omar Faraq were perhaps the first ever entrepreneurs on the show to buck this trend, after Kelly Hoppen decided to throw her hat into the ring with an astonishing offer just seconds after their two-minute pitch ended.
The duo were seeking a Dragon’s backing for Teabox (now trading as PHOM teas), a design-led loose leaf tea brand with a unique twist – customers can create their own tea blends from ingredients listed on the site, with millions of unique combinations possible. With 1,500 units sold and listings in 25 bars, restaurants and cafes across the north-west just months after launch, it was clear the pair had hit upon something with clear potential, and the Dragons were impressed by their passion and determination.
However, even the most optimistic of entrepreneurs could not have predicted an offer would be forthcoming so soon. Without questioning the pair at all, renowned designer Kelly Hoppen declared her love for the concept and made them an instant offer of all the money for a quarter of the business, dropping down to 20% equity if the Teabox hit its performance targets. In context, it was a strong offer, and sent a clear message to the other Dragons that this was a business worth fighting for. It was at this point that both Piers Linney and Duncan Bannatyne bowed out – despite liking the concept, neither were prepared to compete with Hoppen’s terms.
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The entrepreneurial pair skilfully dealt with questions thrown at them from Peter Jones and Deborah Meaden about their vision for the business, and soon Hoppen’s wasn’t the only offer on the table. Jones and Meaden both made comparable offers to Hoppen, asking for 26% and 25% equity respectively, and the entrepreneurs convened for a hasty conference to weigh up the deals on the table. In truth, though, Hoppen’s design pedigree and clear passion for the business had always made her the frontrunner, and the young entrepreneurs departed the den with broad grins having secured her backing.
Start-up business lesson: Sometimes a business idea is so good that investors will fight over you – take your time to weigh up each offer properly before deciding.
Ralph Broadbent and Alex Dickson
Company: Victor’s Drinks
Proposition: Do-it-yourself cider kits
Investment sought: £40,000 for 15% equity
Investment received: £40,000 for 25% equity, dropping to 15% if performance targets met (Duncan Bannatyne)
It’s not often a business idea conceived at a boozy house party still stands up to scrutiny the next day, but young duo Ralph Broadbent and Alex Dickson were convinced they had struck gold when their homebrewed cider proved such a hit they decided to turn it into a fully-fledged business. Their Victor’s Drinks kits were designed to sidestep the messy and complex process of home brewing cider by allowing the user to simply pour in yeast and water into a mix and wait for 10 days, sitting somewhere between store-bought cider and traditional homebrew.
With 2,500 units sold in just a few months and listings on popular gift sites Firebox.com and Hawkin’s Bazaar, the duo were sure their ambitious vision for the business would reach fruition. However, this was not a view shared by Peter Jones, who admonished the pair for their lack of knowledge of the homebrew market and said the branding and get-up was reminiscent of a “school project”. Most of the Dragons agreed with his view that their plan to carve out a new market somewhere in between serious hobbyists and casual cider drinkers was a risky one, leading to Linney, Jones and Hoppen ruling themselves out of contention. Deborah Meaden soon followed, but for a markedly different reason – she felt the £1.25 eventual price-per-pint was too low, and said she couldn’t invest in a business which promoted cheap, irresponsible drinking.
Just Duncan Bannatyne was left, and, despite the widespread apathy shown by the other Dragons towards the concept, the investor was interested. He provoked laughter in the Den when he asked Peter Jones if he was being stupid by making an offer, and Jones’ noncommittal response led to him offering the whole amount – but for a markedly inflated 35% equity. The pair then showed their hard-nosed business credentials by counter-offering 25% – dropping to their original 15% if they hit their ambitious three year financial targets. Surprisingly, the Scottish investor accepted their terms, and the cider entrepreneurs left the Den with the backing and connections of one of the show’s veterans.
Start-up business lesson: Don’t be afraid to negotiate when an investor makes an offer – they may be more flexible than they appear.
Proposition: Online estate agent with a pay-per-viewing pricing model for homeowners
Investment sought: £75,000 for 20% equity
Investment received: None
The vast majority of the entrepreneurs entering the Den leave empty-handed, with only a grilling from the Dragons to show for their efforts. However, as Tom Harrington’s pitch shows, it can still be a valuable experience as an entrepreneur as the seasoned investors can quickly spot gaping flaws and areas for improvement that you may have missed yourself as a business owner.
Apart from an early stumble when his estate agent’s sign became stuck in the iconic lift doors, Harrington’s pitch started well. His online estate agency claimed to sidestep the commissions demanded by high-street estate agents by using a unique pay-per-viewing pricing model. Sellers pay a £99 initial fee to use the site, in addition to a £35 charge per-house viewing, up to a maximum of 12 views (subsequent viewings are free). The site does not charge commission on eventual sales, and Harrington claimed the concept was saving homeowners thousands of pounds on normally “exorbitant” estate agent fees.
The Dragons agreed that the estate agent market was one that was ripe for change, and the young entrepreneur’s unique solution got an especially warm reception from Duncan Bannatyne. But the pitch went south when Peter Jones pointed out a huge flaw in the model – with 195 users, just 70 homes had been sold, representing a success rate of well under 50%. Harrington admitted the site had no hand in the actual sale negotiation process in order to keep overheads down, and Meaden weighed in by pointing out another flaw – one of the key reasons people use estate agents, she said, was to use their negotiating expertise to arrive at a sale for the best price possible, something Wesold had no capacity for.
These flaws, combined with the notoriously tough estate agent market, meant the Dragons ended up agreeing with Jones’ view that the business was “destined for failure”. But, whilst Harrington entered the Den with no money, he had received invaluable feedback from the Dragons.
Start-up business lesson: If a pitch is going badly, listen to what investors are saying about your business; their analysis of its flaws may be closer to the mark than you think.