Dragons’ Den: Series 13, Episode 3
"Chuckle Brothers for business" won over Deborah Meaden while a handbag repair start-up infuriated Sarah Willingham...
Deals were sparse in this week’s episode of the Den with just one investment in a start-up founded by two “Chuckle Brothers for business”, who used their charm to get Deborah Meaden on side.
While the number of investments were low, the Dragons’ ‘words of wisdom’ were shared with several entrepreneurs who either lacked the business nuance needed to secure finance or were told to rethink their business models entirely – particularly in the case of a handbag company which Sarah Willingham found “annoying”.
From diving to ‘man-with-a-van alternatives’, read on for our summary of the Den’s business pitches and the takeaway points you can use when presenting to investors…
Steve Noise and Duncan Summers
Concept: TV cable tidy
Investment sought: £55,000 for 20% equity
Investment received:£55,000 for 35% equity (ratchet to 30%)
The first entrepreneurs to enter the Den this week were “cheeky chappies” Steve Noise and Duncan Summers – dubbed the “Chuckle Brothers for business” by Jones – who had created the “world’s only fully-covered recessed power and TV point” Syncbox. Intended to tidy up unsightly cables and connection problems of flat screen TVs, Syncbox’s founding duo told the panel that they had sold 2,000 units with distributors in the UK and 13 other countries.
Willingham was intrigued to know more about how the product worked and liked the idea, yet Suleyman was less impressed. Once it was revealed that the founders had no forward orders, Suleyman quickly announced himself out of investing; “you’re lovable but you’ve got zero orders”. Meaden then enquired about the financials; Noise and Summers said the business hit £40,000 revenue in year one and was looking to achieve £1m revenue in its fourth year.
While the female Dragons took interest in Syncbox, Jones and Jenkins doubted the product and felt it was over-engineered. Jenkins declared he wouldn’t invest and Jones followed; “you’ve proven proof of concept but I think the business will be small”.
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Meaden disagreed, and based on the grounds that she could “see this working”, offered the duo the full amount for 35% equity. Willingham was also keen to take a piece of the Syncbox business and made two offers of the full amount for 35% equity or £27,500 for 17.5% equity to go halves with Meaden. Meaden was unwilling to share equity which led Noise and Summers to lead negotiations on the equity stake.
Using their “cheeky grins”, the cabling entrepreneurs were able to negotiate a ratchet agreement with Meaden for 35% equity, which offered Noise and Summers the ability to buy-back 5% of their shares within 12 months.
Start-up business lesson: While professionalism is advised when pitching for angel investment, the ‘charm offensive’ approach can work to get investors on side – but only if you have a worthy business concept.
Concept: All-female van removal company
Investment sought: £75,000 for 10%
Investment received: None
Offering an alternative to your ‘man with a van’ removal business – Emma Lanman was pitching for investment for her three year-old start-up Vangirls, an all-female van removal and logistics company. With an aim to put people “more at ease”, Lanman explained that the offering had attracted a broad spectrum of customers from single women and young families to LGBT communities and elderly couples.
With £192,000 turnover and £14,000 profit, Suleyman took issue with Lanman’s valuation; “You want me to value your business at £750,000, I think you’re mad!” but the female entrepreneur stood her ground; “you’ve got to take a risk haven’t you? The potential is huge”.
However her pitch began to come undone when Jenkins found that Lanman hadn’t researched competitors and the Moonpig founder, on the belief that margins would be relatively now, said he was out of investing.
It was also a matter of margins for Jones and Meaden as, despite the fact that both Dragons felt the business could take off, neither wanted to invest as the margins are small. Meaden also noted that her “gender blindness” would create an issue in backing Vangirls.
Suleyman felt that Lanman was “very credible” but the business’ little profit to date (£10,000 of it was taken as a salary) would mean she’d be coming back for more funding by the end of the year so for that reason he too was ‘out’.
Willingham then closed the pitch and said she wouldn’t invest as she didn’t “feel it” which Lanman left empty-handed.
Start-up business lesson: In a competitive market, you need to be able prove that your business has the potential to grow fast and turn a profit. Investors will only invest if they think they can make a return – for that reason small margins aren’t an attractive proposition.
Freya and Judy Bass
Company: The Handbag Spa
Concept: Handbag repair franchise
Investment sought: £60,000 for 20% equity
Investment received: None
A pitch which Sarah Willingham referred to as “annoying”, mother-and-daughter duo Freya and Judy Bass were looking for the Dragons to back their luxury handbag restoration company The Handbag Spa. The presentation was quickly un-stitched though when complications of what was actually being offered came to light.
Having questioned the entrepreneurs’ revenue figures, Meaden was told that the duo weren’t in fact offering the handbag repair business to the Dragons but were instead offering a separate business; the franchise operation.
This revelation led to confusion in the Den with Jones asking “Is the repair business in the offer then?” to which the duo confirmed that it was not. Jenkins “couldn’t get his head around” the pitch and declared himself out of investing straight away.
Willingham wasn’t convinced either; “This falls into the having your cake and eating it too category, it’s such a shame that you’ve walked in here with a great business with the potential to raise investment but you’ve seperated it out. I’m a bit annoyed about the whole thing to be honest with you. I don’t think you’ve thought this through and I’m out.”
This disappointment then spread to the other Dragons with both Suleyman and Jones noting that they loved the concept but that they couldn’t get behind the seperated business.
Meaden then summed up her opinion on the pitch: “It makes me feel uncomfortable when people cherry pick parts of their business and set them aside, it doesn’t create a good relationship. I think it’s a great idea, if you’d have buckled it together and said this is the business we want to franchise it out then you’d have had me absolutely but I’m out.”
Despite being turned away for investment, on leaving the Den the Bass’ announced that they would “prove the Dragons wrong”.
Start-up business lesson: An unwillingness to compromise and failing to be upfront with investors creates tensions from the get-go. In Meaden’s words, don’t cherry pick parts of your business for investors to back; it should be all or nothing.
Graham and Lorraine Hatton
Concept: Safety solution for divers
Investment sought: £120,000 for 30% equity
Investment received: None
In an emotional closing pitch, Limelight founders – husband-and-wife duo Graham and Lorraine Hatton – presented their diving air safety device Limelight to the Dragons. The solution monitors pressure in a gas tank and flashes green when there is ample air and red when a diver’s air reserve is low.
Novice diver Jenkins was first to begin the Q&A and told the duo that he “loved the idea of having something that would indicate to his instructor that he was running out of air”.
Jenkins’ love of the product was then bolstered by the couple’s claim that there was nothing else in the market, they had achieved great feedback and had patents in 10 countries with an offer to buy the patents from a major diving school which they had refused.
But warning lights began to flash when the Hattons revealed their cashflow problems; they had invested £200,000 in Limelight and had spent 10 years trying to make it work, paying around £5,000 each year just to keep the patents. When Jones asked them whey they hadn’t sold the patents, they declared that they didn’t want “someone to change it or sell it for cheap” but said that if they couldn’t get an investor they would “have to call it a day”.
Meaden’s questioning then saw Lorainne Hatton buckle under pressure and leave the room crying leaving Graham to deal with the Dragons questions – which soon turned to lessons of advice:
- Suleyman: “You haven’t got a business, you’ve got a patent. I would suggest you licence it. I don’t believe I could add value and for that reason I’m out.”
- Jenkins: “This isn’t a business but what alarms me is that over the last 10 years you haven’t done a deal. I’m out.”
- Meaden: “The most important thing to me is that you need to look at this and have it make your life better. I’m not going to invest.”
- Willingham: “Don’t let your legacy be that you could have saved lives but didn’t. Licence your product and make sure your brilliant invention saves lives. I’m not going to invest.”
- Jones: “I have an incredible amount of empathy for you. I think you could give this to someone and see them run with it. I’m not going to invest but I wish you the best of luck”.
While their time in the Den hadn’t gone to plan, the Hattons’ came away wiser – “I do think it’s time for us to let the baby go”.
Start-up business lesson: A reticence to give up control can hold you back in business. You may be more of an ideas person than a business owner, if this is the case then follow the Dragons’ advice of “letting your baby go”.