Dragons’ Den: Series 12, episode 4
Another appearance from a Startups 100 entrepreneur in the Den as just one business walked away with investment…
Just one entrepreneur walked away with a Dragon’s backing in the Den this week, after canny distributor Tracey Baker overcame some serious problems with contractual fine print to secure Duncan Bannatyne’s investment.
Elsewhere, avid Startups readers would have recognised the familiar face of Startups 100 entrepreneur Harriot Pleydell-Bouverie, who stood her ground to turn down two offers from the show’s investors. Young duo David Robinson and Phil Law also entered the lift with nothing, having failed to convince investors that their keepy-uppy game had the X factor needed to succeed in a notoriously tough market.
Harriot Pleydell-Bouverie (honourable mention)
Company: Mallow & Marsh
Proposition: Gourmet marshmallows
Investment sought: £65,000 for 10% equity
Investment received: None
The last hopeful to pitch on Sunday’s episode would have been a familiar face to Startups readers – serial entrepreneur Harriot Pleydell-Bouverie’s luxury marshmallow business Mallow & Marsh was listed on this year’s Startups 100 index, in recognition of its unique proposition and rich promise. The business recently secured a major coup when it tied up a 12-month supply contract with Sainsbury’s to stock the luxury treats in 40 stores across Central London, and Pleydell-Bouverie was seeking the backing and connections of a Dragon to take the business to the next level.
The young entrepreneur’s pitch was short, sparse and to the point, and the Dragons were impressed by the design and taste of the product and Pleydell-Bouverie’s unshakeable confidence. This was with the exception of self-confessed marshmallow fanatic Kelly Hoppen, who denounced the product as ‘stale’ tasting and seemed sceptical right from the off, eventually bowing out on these grounds. The marshmallow entrepreneur seemed unfazed by the investors’ barrage of probing questions and was convinced that her product was going to be the next big thing, in the face of a notoriously tough food market.
However, Pleydell-Bouverie’s ambition was such that it nearly killed her pitch, after she revealed a set of financial projections that the Dragons found hard to believe. She expected the business to produce £650,000 turnover – with £100,000 profit – within three years, a figure which was enough to see Piers Linney bow out after describing the business as hugely overvalued. Despite this, Meaden was sufficiently impressed by the product and Pleydell-Bouverie as a person to offer her investment – but for a whole third of her business, a substantial increase on the 10% she was asking for.
Peter Jones also clearly liked the product and was impressed by Pleydell-Bouverie as a person, but concluded she would need more money. He offered her £80,000, but in exchange for a hugely increased 40%, reflecting his own valuation of the business. The two offers left Pleydell-Bouverie with a substantial dilemma – should she accept one of the offers and cede a huge amount of her business for a well-connected Dragon’s backing, or go it alone and retain control?
In the end, Pleydell-Bouverie opted for the latter option, after revealing she had an outside investor lined up who was offering the original terms she was seeking. She admitted afterwards that the decision was “either the biggest mistake I’ve ever made or one of the best decisions I’ve ever made” – only time will tell.
Start-up business lesson: Although it is always flattering to receive an offer from a high-profile investor, think carefully about whether the offer actually makes sense for your business.
Company: Nanotech Labs
Proposition: Peel and stick product for home and office using innovative ‘nanosuction’ technology
Investment sought: £60,000 for 25% equity
Investment received: £65,000 for 35% equity (Duncan Bannatyne)
Most entrepreneurs on the show come with a product or service they have invented themselves – but there is still room in the Den for canny businesspeople looking to distribute an existing product in a new market.
It was on a trip to the US that Baker noticed an American company producing stick-on pads for home and office use which used unique ‘nanosuction’ technology – adhesive pads that contain millions of tiny suction cups, allowing easy placing and removal with the ability to easily carry up to 5kg of weight. Most people would have simply marvelled at the technology and moved on, but Baker spotted an opportunity, and tied up an exclusive distribution deal with the company to serve the as-yet untapped UK and European markets.
The decision had clearly paid off in the short term – Baker’s distribution network had secured a deal with UK retailer Wilkinson to stock five different products across 370 stores nationwide, producing impressive gross profit of £70,000 just a few months after launch.
The clear utility of the product and Baker’s promising figures had the Dragons interested, but the pitch all but fell to pieces when Deborah Meaden revealed a serious flaw in the fine print of the distribution contract. Not only was the contract on a rolling three-month period, the terms also authorised the US company to terminate the agreement ‘without cause’, introducing a substantial element of risk into any investment.
It was a stumbling block of fundamental proportions, and three Dragons ruled themselves out almost instantly following the revelation, with Piers Linney summing up the mood when he termed the level of risk “unacceptable”. Just Deborah Meaden and Duncan Bannatyne were left in, and their shared scepticism meant that it was a major shock when both made offers – Bannatyne with an offer of all the money for an increased 35%, with Meaden following up with an offer for 40% conditional on the contract issue being resolved. Despite Meaden having arguably better connections in the industry, Bannatyne’s early offer won out, proving that sometimes the strength of a product can overcome investor concerns about the level of risk.
Start-up business lesson: Even if your business has legal or contractual risk factors, keep stressing its potential – investors may be prepared to accept high risk for potential high returns.
David Robinson and Phil Law (honourable mention)
Proposition: Badminton-inspired keepy-uppy game
Investment sought: £60,000 for 25% equity
Investment received: None
Like the fashion and food and drink industries, the toy business is one of the most high-risk and volatile in the UK. A product can inexplicably fail to take off even if all the elements of success are in place, and investors are understandably reticent to throw their weight behind new entrants to the sector.
So it proved for young duo David Robinson and Phil Law, who were convinced they had hit upon the next big thing with their product Ukick, which was a kind of keepy-uppy game using a feathered puck reminiscent of a badminton shuttlecock. The product was impeccably designed and well-branded, and the Dragons’ interest was further piqued when they revealed promising sales figures – with 45,000 units sold just months after launch, the pair were able to manufacture the toy at a staggeringly low cost of 70p, representing a huge return on their £7.99 RRP.
The duo wanted a Dragon’s backing to turn their product into a ‘craze’, but they always faced an uphill struggle in such a tough market – whilst the product was good, no investor was convinced it was quite good enough to turn into a worldwide craze. They expected to eventually shift 850,000 units worldwide, but in the end no Dragon was convinced the product could deliver this, and they departed the Den with well-wishes but no investment.
Start-up business lesson: When entering a high-risk market, you need to show investors that your business has something truly spectacular to convince them to take the plunge.