Dragons’ Den: Series 15, Episode 12
On Sunday, the Dragons were pitched vitamin teas, cannabis plant extract, a solution to halter neck pain and more. But who got investment and why?
Sunday’s episode of Dragons’ Den saw a number of quirky inventions and products fight for funding from everyone’s favourite panel of multi-millionaire investors.
The episode showed a duo of female entrepreneurs and sisters who had developed a solution to the irritation and pain that can be caused by wearing halter neck tops – and, naturally, demonstrated their idea with puppets (and had Tej Lalvani don a bikini top).
Next, a pair of entrepreneurs pitched a range of products derived from the cannabis sativa plant, and a third founding duo then showed the Dragons their kids’ story books designed to help children learn languages.
Finally, a lone entrepreneur pitched his range of healthy, vitamin-infused fruity teas.
With one of the above turning down an offer from Peter Jones in a shock move, only two of this week’s start-up hopefuls walked away with investment under their belts. Read on to find out who did, and why…
Dragons’ Den success story: Carun UK
Founders: Michal Takac and Tim Inskip
Concept: A range of organic, vegan products made from cannabis sativa plant extract
Investment sought: £50,000 in exchange for 15% equity
Investment received: £50,000 for 25% equity (Jenny Campbell)
The winning pitch
More commonly known as hemp, cannabis sativa plant extract is high in remedial cannabinoids, but contains none of the psychoactive elements found in its more illegal, smokable counterpart.
Pitched in the Den by Czech Michal Takac and Tim Inskip, Carun UK retails 18 vegan, organic products – from face creams and shower gels to hemp leaf tea – made with this beneficial ingredient.
The UK arm of Czech Republic-based company Carun, Takac was inspired to launch Carun UK when an accident left him with a damaged arm and lost fingers. Surgeons transferred a toe from his foot to his hand, but the process caused “unbearable” pain.
After trying Carun hemp ointment to sooth the pain and scarring and getting “incredible” results, the entrepreneur approached Carun and struck a deal to sell the products in the UK.
First and foremost, Peter Jones wanted to clarify just how legal and safe the products were – being so closely related to a Class B psychoactive drug. When Inskip explained that they have EU certification and the plants grown by Carun contain no THC, Jones was reassured that he was “not going to be an investor in some sort of illegal drugs ring”.
Tej Lalvani, meanwhile, had other worries. Retailing as cosmetics rather than medicine, Lalvani was concerned that the brand is not legally able to advertise its products’ pain-relieving benefits – though the duo told him they were looking to gain medical certification in the UK.
In a moment that stunned the Dragons, Takac revealed that he had invested £200,000 in the business, admitting that he’d spent at least £100,000 on “mistakes” – including a 10,500 square-foot warehouse, offices and premature hires.
And it would get worse for the entrepreneurial duo – Meaden, having examined the paperwork for the distribution deal between Carun Czech Republic and Carun UK, pointed out that the deal leaves the duo with no automatic renewal rights for keeping ownership of the UK business after 2023. This was enough for both Meaden and Touker Suleyman to decide not to invest.
And Lalvani, concerned that the products would need to undergo clinical trails costing around £120,000 each time, was next to close his notebook.
Campbell, however, saw the duo’s passion, and would give them the opportunity to renegotiate their agreement with Carun. After a brief chat at the wall, they decided to accept her offer of £50,000 in exchange for 25% equity.
What the Dragons said:
Deborah Meaden: “Right now, you have absolutely no negotiating tools in here whatsoever. On June the third, 2023, if you’ve done a cracking job, you hand this business back to these guys. There is nothing in here that gives you an automatic right of renewal.
“You’ve built their brand, they’ve got a really, really valuable asset over here. Why on earth would they renew? Job done. Market penetrated. I’m not spending my time building somebody else’s brand for them. I won’t be investing. I’m out.”
Touker Suleyman: “My question mark here is the fact that you don’t own the brand, it’s a distribution, and there could be no exit.
“I’m not doubting the product – amazing product, as you say. But you don’t own the brand. Once you’ve created the brand, the retailers want the brand; they don’t care about you. I do wish you all the best, because you’re going to make your friend rich. I’m out.”
Tej Lalvani: “For products like this, the most important thing is to show the effectiveness, that it works. You’ll need to do clinical trials in pretty much every regional territory that you launch in, because they’ll all have different licensing agencies. And the cost of doing a clinical trial… and to get the licence will cost you a hell of a lot more. You’re going to have to raise half a million pounds. I’m out.”
Peter Jones: “I’m concerned about the way that you’ve gone about setting this business up, Michal, particularly you – having friendships in your home country is fantastic, but what you should have done was, if you had such a huge amount of money, £200,000 to invest, you should have found a way to invest in the holding company in the Czech Republic.
“I could have been potentially interested, actually, in something like this. But ultimately, you’ve brought a distribution-agency style deal that I think isn’t good enough. So, I’m out.”
Jenny Campbell: “So, this is a bit of a mess isn’t it, from where we’re standing. I’m sure you can see that. You come into the Den with an exclusive exclusivity agreement that you’re halfway through, and all sorts of issues on extending or minimum purchase levels.
“I think this is complex. But I can see the belief in your eyes, Michal, and certainly you’ve come on board, Tim, with the same belief. But I will make you an offer. So I will offer you all of the money, but because of the risk factors, multiple risk factors in this deal, I would want 25% of your business.”
Dragons’ Den success story: T Plus Drinks
Founder: James Dawson
Concept: A range of “super tea” containing functional herbs, natural fruit flavours and vitamins
Investment sought: £75,000 in exchange for 10% equity
Investment received: £75,000 for 50% equity (Tej Lalvani)
The winning pitch
Pitching “a new generation of vitamin super tea” combining green tea with herbs, fruit flavours and nine essential vitamins – and with over 900 retail listings already under his belt – was T Plus Drinks founder James Dawson.
After the Dragons had sampled the teas, Lalvani – an expert in the vitamin supplement space – was first to raise concerns over them: first their branding, which he argued didn’t press their vitamin-rich USP, and then their formulation – which only contained B and C vitamins.
A confident Dawson, however, argued that those looking for less mainstream vitamins wouldn’t stray from taking supplements – though the Dragons seemed unconvinced.
Meaden, after complimenting the taste of the teas, was keen to delve into the business’ finances – and found that the start-up had made a net loss of £55,000 in 2016 and was forecasted a net loss of £43,000 for 2017.
While Dawson explained that this was because he’d invested in stock that wasn’t sold when expected due to a delay to a listing with Holland & Barrett, Jenny Campbell wasn’t won over. She questioned the business’ costs, and Dawson’s forecasted £80,000 marketing spend seemed “an awful lot of money to have to spend” to the former banker.
When it turned out that the start-up had raised a total £100,000 through two funding rounds but that this had been spent on product creation and branding, Jones was ready to step down.
After questioning the business’ £750,000 valuation – a calculation made by multiplying the start-up’s forecasted revenue by three, which Jones deemed an inaccurate method – the Dragon declared himself out.
Conversely, Meaden understood Dawson’s figures as correct and argued that the company still had enough cash in the form of Dawson’s £20,000 director’s loan. But, unconvinced by the necessity of the products themselves, she declined to invest. Suleyman followed, dropping out of the proceedings with a warning: “You’ll run out of money.”
Lalvani could see a clear path to success for the start-up, but it would come at a considerable price. He offered £75,000 for a whopping 50% equity – on condition that T Plus Drinks would be co-branded with Lalvani’s health market behemoth Vitabiotics.
Campbell too could see potential, but felt that she would prefer to shoulder the work involved beside another Dragon. Lalvani, however, was not prepared to share: “I feel I don’t need another Dragon.”
Though Dawson requested a ratchet deal in which Lalvani’s equity would later be reduced, the investor sat firm at 50% – meaning equal involvement with Dawson. The founder accepted, shaking on what Meaden called “a match made in heaven”.
- Year 1 (2016) – £25,000 revenue with net loss of £55,000
- Year 2 (2017) – Forecasted £230,000 revenue, with a gross profit of £140,000 and a net loss of £43,000
What the Dragons said:
Peter Jones: “I think you need more than just money, you need some financial help and assistance with your business to re-model it and really get a decent, concerted plan. I don’t see this as a very big opportunity, and your forecasted growth I just don’t believe. I’m sorry, I can’t invest.”
Deborah Meaden: “At the end of the year, the company has the cash, because it has £20,000 from your director’s loan account. So I don’t think the cash is your particular issue. I have one issue with this business, and that is, if I’m bothered about drinking green tea for a health aspect and I’m taking vitamin supplements, I am worried that this is not as good as doing what I currently do.
“The trouble is, you’re saying the vitamins piece is a bit of an add-on, so that is a real worry for me. I’m afraid I won’t be investing. I’m out.”
Touker Suleyman: “James. You come across credible. But at the end of the day, I totally agree with what Peter says – you’ll run out of money. And I think it’s what you call, in the old business sense, overtrading. Today, you’re getting no investment from me, but thank you for the tea, and I’m out.”
Tej Lalvani: “Your biggest problem here is your £750,000 valuation for the business. Okay, it’s a nice product, I’m not happy about the packaging, I think it doesn’t communicate stuff on there. Formulation, again, I’m still not 100%.
“But what I will do is make you an offer. It would need to be on the following basis – that I’d like to co-brand it or brand it with Vitabiotics, because it needs to be a shared vision, and I would want to take more of an active role in it – UK, internationally. And to make any sense of the valuation, I’ll need a significant amount of equity. Which means I would want 50% of your business.”
Jenny Campbell: “See, my position, James, is that I do think you probably have something here. Hearing Tej talk about, you know, wanting to take 50% of your business makes me think that leaves a structure in the wrong place. Having said that, I totally get the value that he would add to your business. So I think it’s very difficult to compete with that.
“I think where I would be, James, I do like it, but there is an awful lot to do. So I would be prepared to put up half the money for 20%.”