Dragons’ Den: Series 11, episode 8

Episode 8

Overvalued pitches dominated this latest Dragons’ Den episode with a controversial proposition from the founder of a ‘custom made’ contraceptive solution raising eyebrows in the Den. However, minicabit founder Amer Hasan managed to turn it around with his taxi cab price comparison service which saw him take negotiations into his own hands.  Hasan managed to get two of the Dragon’s to revise their original offers to secure the only investment of the night.

Amer Hasan

Company: minicabit
Concept:  Taxi price comparison site and mobile app
Investment sought: £75,000 for 15% equity share
Investment received: £75,000 for 35% equity (Deborah Meaden and Peter Jones)

The pitch:

A confident pitch from Hasan for his comparison service (pictured above). The app and website allows users to instantly compare real-time quotes for out-of-town taxis from licenced mini-cab providers across the UK, deducting a 10% commission from the driver’s fare and a £1 booking fee. Having already attracted 100 cab owners to its network and £10,000 worth of bookings made through its service in the last month, Hasan was off to a good start.

With 84% ownership in the company, Duncan Bannatyne was keen to find out who the other shareholders were and quickly discovered that there was a corporate investor with 7% stake. Hasan debated whether or not to reveal the name of the corporate investor and things could have quickly gone downhill as Jones advised that Hasan either “discloses it here and now and we can have a conversation or you withhold it and walk back into the lift.” After Hasan chose to go with the former suggestion, and inform them that it was O2, interest from the Dragons’ was renewed with Piers Linney, Deborah Meaden and Peter Jones all fighting for a stake in the business.

Jones was the first to make an offer; offering £75,000 for 40%. Meaden made the same offer and then Linney jumped in with a potentially “game-changing” offer of £75,000 for 30%. Hasan then asked whether the trio would look to merge together to which Meaden declined, arguing that there would be too many voices and too many people chipping in.

Hasan’s negotiations didn’t stop there though and he then asked whether Meaden and Jones could drop their equity percentages. Jones and Meaden then agreed that they would co-invest for 40% but that they would each give 5% back if Hasan met his target after 12 months.

Linney stuck to his offer but it was clear Hasan wanted more than one Dragon stating “it’s about a coalition of experts.” Hasan then continued negotiations and argued that he wouldn’t be comfortable having a target ratchet so unless Meaden and Jones were willing to move closer to 30% without a ratchet he would go with Linney.

Hasan did enough to convince Meaden and Jones to drop their conditions;they revised their offers for a final time to a joint investment of the full £75,000 for 35% which Hasan accepted. Speaking afterwards, Hasan admitted that he was unsure whether his decision to go with Meaden and Jones was the right one but that “being an entrepreneur is all about taking risks.”

Start-up business lesson – Investors aren’t always the ones in control and you can be in the driving seat – it’s as much a pitch from them as it is from you.

Joe Nelson

Company: TheyFit
Concept: Tailor made condoms
Investment sought: £200,000 in return for a 10% stake
Investment received: None

The Pitch:

• A cautionary tale of how things can go awry when trying to win investment as “condom revolutionary” Joe Nelson pitched his made-to-measure male condom business. Launched in December 2011, it manufactures and sells 95 different sizes of condoms in 14 different lengths to consumers online, Nelson valued his business at £2m and argued that nobody else could size condoms in the same way.
• The pitch was quickly seized upon by Duncan Bannatyne who doubted Nelson’s claim that condoms are normally “one size fits all” and questioned the uniqueness of his product.
• Jones and Linney felt Nelson’s business model was flawed and that rather than looking at targeting one area of the market, specifically the higher end of the market, Nelson’s desire to appeal to the masses “killed it” in terms of profitability. His £2m valuation was also argued to be bloated.
• An exasperated Nelson struggled to combat the Dragons’ concerns as Jones pointed out that the business wouldn’t benefit from economies of scale, and Bannatyne questioned the sales potential as there wouldn’t be shelf space available to put TheyFit in stores, and equally took issue with consumers going online to buy condoms.
• Further umbrage was taken when Nelson revealed his patent didn’t actually protect the product, just the method of sizing, which Meaden suggested wouldn’t stop other people from having the same idea.
• The final signal for the Dragons to drop out came when Meaden stated her problem was not with the proposition but the entrepreneur; she couldn’t work with Nelson as he “goes into sales mode without listening or really taking in the questions”.

Start-up business lesson – Don’t make bold claims that can easily be disputed – remember you are the face of your business and not providing clarity around intellectual property to secure backing won’t sit easily with investors.

Lynwen Harrison and Rachel Smith

Company:  NouriSH me now
Concept:  Natural sports recovery drink
Investment sought:  £75,000 for 15% equity stake
Investment received: None

The pitch:

• A promising start as GB Olympic athlete and physiotherapist Lynwen Harrison pitched her “natural, fresh” sports energy drink with no chemicals or preservatives which alleged to support quicker recovery from exercising.
• The pitch quickly came undone when the ingredients were discussed and the two-week product shelf life came to light. Alarm bells started ringing for Kelly Hoppen who argued that their non-use of organic fruits, high levels of sugar and it being a dairy-based drink would not appeal to the mass sports market and she rejected investing as she didn’t believe in the business.
• Market appeal was also a concern for Duncan Bannatyne who questioned why they hadn’t been able to distribute their product on a wider scale.
• Linney argued that not all “the boxes had been ticked” but he was more put-off by the branding and packaging which made it look artificial like a “drain cleaner”. His final point perhaps sums up the female duo’s pitch best, arguing that Harrison and Smith had created a product that was very hard to take to market, in a market which is highly competitive.

Start-up business lesson – Considering the commercial viability of your business idea and knowing your target market is key– ensure there is the potential to scale your business.

David Solomons, Mike Edwards and Heidi Edwards

Company:  Snugglebundl
Concept:  “World’s first” baby lifting blanket
Investment sought:  £100,000 for 20% equity
Investment received: None

The pitch:

• “All parents know how difficult it is when you’ve got your baby to sleep in your arms and then to try to lay them down without waking them up. More often than not they wake up and you have do the whole thing again.” This was the introduction to the Snugglebundl from David Solomons and Mike Edwards.
• The cotton, safety-tested garment, which is intended to be wrapped around a baby in the first six months, was presented as a solution to allow parents to easily be able to put babies to bed and similarly take them out of their crib, car chair, or shopping trolley, without waking.
• It received a mixed reaction from the Dragons with Kelly Hoppen impressed by the product believing it be a “clever concept.” Linney, on the other hand, was quick to point out its flaws arguing that, as it’s a form of clothing, the baby would have to effectively live in it in order for the parent to benefit.
• Yet, it was the valuation of the business that brought the pitch to a standstill as the Dragons’ learnt that the product retailed at £39.99 and the entrepreneurs valued their company at £500,000.
• Jones was quick to criticise, saying that a “carrier bag for a baby” wasn’t a business opportunity worth £500,000. Jones then made what Meaden deemed as “sexist” remarks as he challenged the fact that two men were the face of the business, at which point co-founder Heidi appeared in the Den to try to dispel Jones’ claims.
• Ultimately all five Dragons weren’t convinced and there was a general feeling of confusion at the business valuation. Jones felt he wouldn’t get a good enough return, as did Linney, and Bannatyne followed suit, stating that although the business may make some profit, it would never be worth £500,000.
• Meaden appeared indecisive believing that it would work and said that for less money, say £50,000 investment, she would have backed it but that their valuation was “crazy”.
• Hoppen’s initial interest too was short-lived, after she learnt that Boots had expressed interest but hadn’t arranged a meeting with the founders, she suggested that perhaps the commercial opportunity wasn’t there and with that she said the final words; “I’m out”.

Start-up business lesson – Valuing your business far higher than it’s worth can be detrimental to raising investment –have evidence to back up your valuation.