Dragons’ Den: Series 13, Episode 9
In the part one finale of the series, we witnessed Jenkins' "puppy love" for a business alongside a pitch from the Den's youngest ever entrepreneurs...
Despite this week's episode drawing a close to the first part of the series, the Den was a flurry with entertaining pitches – including one which saw Jenkins talk to a toy dog – and there was an inspiring appearance from two teenage entrepreneurs aged just 14 and 12 years-old.
Demonstrating the importance of “pitch, product and people”, this week we learnt the value of valuations, patents as integral to business success and how a lack of market research can end all chances of securing investment.
Read on for the start-up business lessons of the finale episode and take a look back at advice from previous episodes in part one of the series here.
Pelham Vincent and David Hall
Company: Foldsmart Ltd
Concept: Easy assemble flat pack furniture
Investment sought: £150,000 for 10%
Investment received: None
Determined to “revolutionise” the flat pack furniture industry, construction workers-turned-entrepreneurs Pelham Vincent and David Hall were first into the Den to pitch for investment for their business Foldsmart LTD – pop-up flat pack furniture which can be assembled in under two minutes.
The pitch got off to a shaky start as Vincent stumbled over his lines and concerns were amplified when Suleyman jumped on the flat-pack bed and it buckled – an issue which the founding duo said happened because the bed was missing a support, not because it was faulty. Yet Willingham thought the idea was a good one: “Flat pack furniture is an absolute nightmare – I completely get where you're coming from.”
The duo also responded well to questioning from Jenkins on the benefits of the product as they highlighted the fact that the furniture could be taken down just as easily and quickly as it could be put up making it perfect for the landlord and student market which Jenkins agreed was a “big advantage”.
Yet Jones was less impressed and expressed concerns over the valuation “You're valuing a little design and some hinges at £1.5m?!” and these concerns were realised when Vincent revealed he had based the valuation on a figure he found from the internet which said the UK flat pack industry was worth £24bn a year but had no real statistics or research to back it up.
The pitch then began to fold as the duo's lack of business acumen became apparent; “we're carpenters by trade and we don't know about retail and distribution, that's why we're here” and Jenkins announced himself out of investment as he felt the founders didn't have “the experience” to make the business a reality and the valuation wasn't appealing. Suleyman also folded on the deal as he didn't want to “waste time on a £1.5m valuation”.
Meaden was more sympathetic to the furniture entrepreneurs: “I think you're getting a pretty hard time. Your valuation is racy but I put that down to business naivety”. Instead, she was focused on learning about the patent pending but, on review, concluded that the duo would not be able to get a patent for the design – “guys, I worry for you”, and declined to invest.
Willingham also felt the duo were “genuinely naive” but didn't think the business was investable and so left it to Jones to decide the investment fate of Foldsmart but their hopes were soon scuppered:
“I don't know why they're saying about naivety. I'm giving you a hard time for your valuation because I think that's your fatal error. I'm out but if you ever go to somebody again for investment, be more realistic and know your numbers.”
Start-up business lesson: Valuing your businesses on a figure plucked from the internet will do nothing but drive away investors – make sure you have in depth market research and analysis. Similarly, if you claim to have a patent for your business, you must be able to evidence this – patent and patent-pending are very different things.
Dorothy McLaren and Chelsea Hayes
Company: School Trunk
Concept: Storage business for public schools
Investment sought:£90,000 for 10%
Investment received: None
Valuation was also an issue for Chelsea Hayes and Dorothy McLaren, the founders of School Trunk, as they pitched their out-of-term packing and storage service for public school children to the dragons.
There was an awkward start to the Q+A procedure as Jenkins revealed he had met Hayes “over a bottle of wine” and “needed to abstain from investing”. But the remaining dragons appeared to show interest in the offering as the ex-boarding school mums outlined turnover of £65,000 for the first six months and plans to hit £150,000 by September of this year with 650 students already using the service.
But, as far as Suleyman was concerned, the duo's offering was not top of the class as he explained that trunks were already widely used by boarding school children and didn't believe there was a real USP; “I had children at boarding school and on the first day there were rows and rows of trunks, most parents that can afford to send their children to boarding school will buy them a trunk, I contradict what you say!”
Jones then questioned the numbers but there was the “classic Dragons' Den moment of forgetting the numbers” as Hayes stumbled over the figures and Jones then criticised the company valuation: “To value a business at nearly £1m is ridiculous at the stage you're at. You're an infant start-up with no real USP at the moment. There's nothing you're doing that someone else couldn't do so I'm out”.
Willingham was still keen to find out more and enquired about the lead time in securing school contracts but was disappointed on hearing that it took between a year to 18 months to secure a school contract. This slow return on investment led her to announce “I'm out”.
Meaden followed Willingham's lead and turned down the deal as she couldn't see where she could add value and Suleyman rejected the offer as he felt “there were too many flaws”, leaving Hayes and McLaren expelled from the den without investment.
Start-up business lesson: If you haven't been trading long and have little evidence of business traction, you should think carefully about how you value your company and should be realistic with numbers.
Kia and Scarlet Bannatyne
Company: Crikey Bikey Ltd
Concept: Cycling harness for bike learners
Investment sought: £25,000 for 10%
Investment received: None
The UK is witnessing a surge in young, plucky entrepreneurs so it only was a matter of time before the den saw an appearance from teenage business founders and Kia and Scarlet Bannatyne, aged just 14 and 12 years-old respectively, had business acumen way beyond their years.
The duo had created their product – the Crikey Bikey – after watching a father struggle to help his child learn to ride a bike as had to bend down and hold the back of the bike while holding the handlebars. Instead, their harness invention enabled a parent to run with the child on a bike and hold on to them at the same time.
Having sold over 100 units, secured interest from national retailers including Go Outdoors and Evans Cycles and already having set up manufacturing in China, the dragon panel were more than impressed and Suleyman told the duo they “should be of yourselves”.
Despite the young founders' pitching expertise, Willingham questioned the need for product as she didn't feel the transition from stabilisers to riding freely was a difficult one and Jones was worried about the design as he didn't see how it would allow him to keep control of the bike.
Jones then expressed concerns about the day-to-day running of the business it came to light that the sister's mother Ali Bannatyne (who also appeared in the Den) was responsible taking calls and emails from clients but, as a teacher, she could only do so at break times and after school. Jones: “I think it's going to be quite difficult for an investor like me to get involved as we're going to need someone to come in and run it full-time which will cost £20,000 to £30,000 which will eat into the investment opportunity so I'm out,but I'll buy one just because I want to.”
It became clear that the dragon panel were going to put the brakes on invesment but each investor shared advice for the teenpreneurs:
- Willingham: “I don't think it's the right time for you to get an investor in if I'm honest as you've got a really nice small business and you should keep it that way”.
- Meaden: “I'm not a patent lawyer but the harness exists and I don't see anything on here that's new, I would have thought the chances of getting a patent was very minute. When I think about where I'm today it's as much about the things I've got wrong as the things I've done right. By investing, I think I'd be making it too easy and it would be disservice to you so I'm out.”
- Jenkins: “If you don't have to raise money then don't. Owning a 100% of your business is a real luxury – I'm out”.
Suleyman also negated to invest but offered the duo some highly credited ‘Touker time' as he assured them that he would review the product on his bike website and would “make sure every bike shop in the country knows about it” and the Bannatynes decided that this was perhaps a better outcome: “It was probably better than getting investment as we don't have to give up equity”.
Start-up business lesson: The Bannatyne sisters had entrepreneurialism in abundance but their lack of business management, patent and the fact they were still at the very early stages, meant they weren't right for dragon investment. Make sure your business is investment-ready BEFORE you go out to investors.
Steve Shickell and Tony Garlick
Company: Magloc UK
Concept: Magnetic dog and equine lead connector
Investment sought: £100,000 for 20%
Investment received:£100,000 for 40%.
Last to enter the den, were Steve Shickell and business partner Tony Garlick who had created an alternative lead device to trigger clips for dogs and horses which connected together using magnets; the Magloc. Launched in September 2013, the business had sold in excess of 20,000 units and had a distribution partner with a licence to sell in 13 countries. Would their time in the den be a walk in the park?
Jenkins, a keen dog owner, was the first to trial the product and showed “puppy love” for the product as he felt there was something “very satisfying about [the lock mechanism]” but horse lover Meaden was less convinced by the equestrian lead; “I do everything one-handed anyway [even with a trigger clip lead] so it wouldn't help me”.
Willingham then questioned the company sales and Shickell explained that they already had the product stocked in pet stores and Pets At Home's website. This revelation alarmed Jenkins and he seemed to lose enthusiasm about the product:”What concerns me is that you're getting footfall into all the major stores and you haven't sold that many.”
Willingham quickly showed her cards and said she would not be investing as she had issues about their sales figures, followed by Meaden: “I'm not that convinced by the equine market, I won't be investing.” It then panned to Jones who, while a fan of the Magloc device, didn't feel he was the right investor as he said he wasn't “quite as excited as” Jenkins.
Often one to leave his opinion to the end of the pitch, Suleyman then got off the leash by making the entrepreneurs an offer of the full £100,000 for 40%. Jenkins then put aside his concerns over sales as he felt the business concept “needed to be capitalised on quickly” and matched Suleyman's offer.
Having asked if they dragon duo would consider an joint offer, which was quickly rejected, the founders decided to accept Jenkins offer as they felt he could give them the “viral marketing” they were looking for.
Start-up business lesson: An innovative “neat” concept, strong pitch and market potential helped Magloc win backing but their sales numbers did affect the offers on the table. Even if your sales figures are small, you should demonstrate to investors that you have a sales pipeline and strategy in place.