Dragons’ Den: Series 13, Episode 14
DIY pints failed to secure backing while slap-on watches and 'naughty' brownies whet investor appetites. Learn from the pitches here...
In the words of presenter Evan Davis, this week's Dragons' Den episode was an “investment bonanza” with three deals secured for a glamping venture, slap-on watch business, and brownie points for a chocolate treat company.
While the entrepreneur-turned-investors seemed more willing to part with their cash, in this episode there were still several business lessons to takeaway – especially when it came to valuations and business models.
Read on to find out more about the start-up pitches and where they went right (and wrong!)…
Company: Slappie Ltd
Concept: “Slap-on” wrist watches
Investment sought: £50,000 for 25% equity
Investment received: £50,000 for 45% equity (Nick Jenkins)
First into the Den this week was Birmingham entrepreneur David Kendall with his slap-on wrist watch business Slappie. Having taken over the company a year ago, Kendall explained the business had achieved £105,000 worth of sales purely via e-commerce and said he wanted investment to make Slappie a “global success”.
Peter Jones was the first to question Kendall's pitch and wanted to know more about the acquisition. Kendall explained that he acquired the company for £75,000 and had put additional stock in place and spent money on development and building the website, he also shared more detail about the company's trunover figures with £45,000 for 2014, £63,000 in 2015 and projections of £500,000 and £2m for 2016 and 2017 respectively.
Nick Jenkins didn't share Kendall's optimistic financial projections and expressed his concern that slap-on watches were no longer “on trend”. Kendall attempted to reassure the Moonpig founder by detailing interest from Claire's Accessories and “very early stage” discussions with Notonthehighstreet and Wicked Uncle. Kendall went on to explain that his ultimate aim was to get Slappie stocked in big retailers such as Urban Outfitters and Selfridges which alarmed Sarah Willingham who felt his business strategy “wouldn't work” and announced herself out of investing.
After Kendall explained that he also owned a management consultancy, Jones was next to utter the words “I'm out” as he was sceptical of Kendall's level of commitment to the Slappie company and said he felt Kendall “could be the issue in the business not progressing”. Meaden agreed and declined to invest; “It's just not for me”.
Jenkins then questioned the balance sheet and Kendall admitted that he was in debt with a £107,000 directors loan against the business. Suleyman was next to share his thoughts and pointed out that although Kendall had a good brand and a supplier in place, the drawbacks were that the product wasn't patented and the owner was already in debt.
After questioning his dedication further, Suleyman announced he would be making an offer; “I want you to capitalise your £107,000 so the company doesn't owe you any money and I'm going to give you £50,000 but I want 45%”. Jenkins took Suleyman's lead and also made an offer of all the money for 45% but offered a different way to deal with the business' outstanding debt.
Following a “talk with the wall”, Kendall opted to accept Jenkins' offer and on giving up such a large chunk of equity declared: “I'll take [owning] 55% of the company with Nick than 100% on my own. I'ts worth it”.
Start-up business lesson: The dragons were torn over Kendall's pitch and, while the watch entrepreneur successfully secured investment, they flagged up several issues that needed to be addressed. This included having a solid business strategy in place, understanding your target market, and demonstrating motivation and drive to make a business idea work; don't let other areas of your life – be it work or other ventures – distract you.
Jonathan Harris and Jonathan Schofield
Concept: Trailer tents
Investment sought: £80,000 for 5% equity
Investment received: £80,000 for 25% equity (Deborah Meaden)
Said to have created the “world's most exciting mobile glamping (glamorous camping) product”, Jonathan Harris and Jonathan Schofield were looking to secure investment for their Opus trailer/camper product. Designed to carry bikes, boats, kayaks and even a motorbike, the trailer could also be converted into a luxury camper with two king-size beds at either end, running water, heating, gas and electric cooking, a fridge and a toilet.
After scoping out the tent trailer, Willingham wanted to know how long it would take a “numpty” to put the tent camper up and she was suitably impressed when the duo confidently replied that it could be assembled in just 20 minutes.
Harris and Schofield then outlined more about their background and explained that they had been operating in the caravan market since 2002. Schofield then revealed that he already owned a successful camping business called PurpleLine which had achieved £3.4m turnover with profit of around £500,000, but that he was looking to hive off the Opus camper as a separate business.
Then came the revelation that the duo already had a business in Australia and America selling the Opus which meant that the business offering open to the dragons was only to retail the Opus to the UK and European market. This caused a disgruntled Jenkins to declare himself out of investing; “I didn't come on the show to be a salesman for someone's minor subsidiary.”
Despite concerns over the global sales opportunities, Willingham made an offer of all of the money but said she wanted 10% of the existing PurpleLine business on the condition that thee duo could buy back 5% once they made the money back. Jones felt that the product was “amazing” but also wanted a share in the existing PurpleLine business and matched Willingham's offer.
Suleyman upped the ante by offering the full £80,000 for 10% of the PurpleLine business OR £80,000 for 25% of the Opus business. Meaden then made an offer of all of the money for 25% of the Opus business, despite the fact she felt the duo had “made it quite difficult” to invest.
Despite a last ditch attempt from Peter Jones to go halves with Meaden, Harris and Schofield chose to accept the offer from Meaden as she was the investor they “wished to court before appearing in front of the panel”.
Start-up business lesson: Harris and Schofield presented an “amazing” product yet the business' sales potential was limited to the UK and Europe. Investors will want to think about the bigger picture and how your business could grow; try to remove as many barriers to scaling your business idea overseas. View our guides to growing overseas here.
Company: Drink Command Ltd
Concept: Self-serve beer
Investment sought: £200,000 for 10% equity
Investment received: None
The only entrepreneur in this week's episode of the Den to leave empty-handed was Dubliner Robbie Ward; founder of self-serve draft beer system Drink Command. The system enables customers at festivals, bars, pubs and venues to pour their own pints and avoid the queues.
Users purchase credit on a key fob from the operator or buy credit on the mobile app, they then select the beer they want from the screen and then pour it themselves. The system is able to check how much the customer pours out and how much credit they have remaining. Ward alleged that the system helped drive repeat business, boasted sales of £370,000 to date in five continents, and said he had purchase interest from Yo! Sushi and Glastonbury.
On trialling the product, Willingham and Jenkins found that there was a long wait for the beer to finish being poured.On questioning about the timing; Ward explained that the company “lived and died” on the quality of the beer and that they had served three million pints so wouldn't have had the same repeat service it it was poor quality.
As a major player in the food and drink industry, Willingham wasn't keen on the idea of the credit fob system and inquired as to why the system wasn't credit-cared enabled. Ward explained that the system couldn't accept credit cards as that would make it a beer vending machine which is illegal. Despite Ward's response, Willingham felt the system offered another “way for bars to take more money from people” and didn't feel comfortable with it from the consumer perspective so announced she would be out of investing.
Jones was next to question Ward and wanted to know about profit. Ward detailed £19,000 net profit, and then explained that he valued the business at £2m because he had just secured an international distributor agreement for Australia with a £50,000 licence fee and a minimum of £1.8m sales over three years, with the business making 55% profit of that agreement.
Peter Jones was unconvinced by Ward's big picture for the business; “You've sold 75 units! […] Let's live in the now, today! What's worth £2m today?” Ward was lost for words and struggled to provide evidence for the valuation which led Jones to assert that the entrepreneur was “floundering” and he explained that couldn't invest as the business wasn't “investable at the valuable being suggested”. Suleyman wasn't convinced that pubs would take up the system so also announced himself out of investing.
In contrast, Jenkins announced he wouldn't be investing as he couldn't understand why Ward needed the cash and felt he could build the business on his own. Ward's time in the den then came to an abrupt end when Meaden declared that she did think Ward would “make a go of it” but didn't feel confident in the valuation – “I'm out”.
Start-up business lesson: Time and time again, start-ups come up against investors in the den for their unrealistic valuations. While you should be ambitious in business, there needs to be reasoning and explanation for your business valuation; think about your sales and profit figures to date, your customer/client numbers, market reach, supplier interest, and potential to scale.
Morag Ekanger and Paz Sarmah
Company: bad brownie
Concept: Gourmet-flavoured chocolate brownies
Investment sought:£60,000 for 15%
Investment received:£60,000 for 30%
It was a lesson in business models in the final pitch of the episode from Morag Ekanger and Paz Sarmah; founders of bad brownie. Having run their gourmet-flavoured chocolate brownies business for just over 18 months, the duo explained that they had already expanded to South East London production unit and were selling 2,000 to 5,000 brownies a week at markets across the capital.
With over 100 flavours including salted caramel and even bacon and maple syrup, and turnover in excess of £300,000 to date, the “foodie” entrepreneurs seemed to be offering the investors a sweet deal. Willingham and Suleyman said they were big fans; “I've never eaten brownies like this before!” But the pitch started to unravel when the duo explained they wanted the investment to open up a shop in Soho or Covent Garden.
Suleyman felt this retail model wouldn't work; “You'll need a lot more than £60,000, a lot more. That's what worries me”. Willingham wasn't convinced by the shop ambitions either and said she would be “be amazed if they got a site in Soho or Covent Garden without paying a significant premium for it”.
Having explained that they expected their shop to achieve £20,000 turnover a month with 50% profit, the duo then came under fire from Jenkins when their profit margins didn't add up; “You're about to torpedo your business because your gross margin is horrendous.”
Despite her love of the product, Willingham said she wouldn't be investing as the duo were unlikely to make any money on £5,000 a week and said the “economics weren't right”.
The shop model wasn't popular with Jones either; “I won't be investing as I don't think I can make a return, let alone a sizeable one” and was criticised by Jenkins and Meaden who turned down the offer of investment; “I'm desperate for you to succeed but I don't think retail is the right avenue for you go down.”
Much to the surprise of Salma and , Suleyman then showed his sweet tooth when he revealed that he would be making the business partners an offer of the full amount in exchange for 35%. Then, after politely asking if Suleyman would negotiate down to 30%, the fashion entrepreneur suprised the investor panel again when he decided to amend his offer to the 30% the duo were looking for.
Start-up business lesson: Learn from bad brownies' pitch and make sure you know your margins and have a convincing business model. While Suleyman went against the perceived wisdom of the rest of the panel, the investors were in agreement that the product was sound. Watch this space to see if ‘Touker time' pays off…