Our high-growth and investment team has extensive experience helping young, innovative companies secure the necessary investment to fuel their growth. As legal partners of Entrepreneurial Spark, we're also well used to helping them be investor-ready in terms of facing a grilling when pitching for backing.
Each week, we outline how we would the help the businesses coming under fire from the Dragons deal with their potential pain points from a legal perspective.
This week saw the season finale in the Den, and so there was much anticipation of some large amounts of cash being given away by the Dragons. One of the themes of last night's episode was the potential for share buy backs being agreed as part of the investment deals, as this was proposed by two separate entrepreneurs.
Be Tempted – what's it really worth?
First up was Sarah Hillary of 'Be Tempted' which produces high-end gluten free cakes. Although the Dragons were not overly impressed with the businesses figures and its ability to grow, this didn’t stop an offer of investment being made. As is often the case in any investment, the investors will query the business valuation (in this case a tasty £1.5m) and so the offer that was made gave the full amount of cash sought, but for a much higher equity stake in the business.
Perhaps learning from the failures of previous entrepreneurs, Sarah attempted to negotiate by asking whether part of this increased shareholding could be bought back from Dragon Tej Lalvani should the business hit its sales targets over the next two years. Tej agreed to this and so the deal was done.
When looking to negotiate any investment deals, it is important that you take advice from professionals, particularly when it comes to tax. If you are looking to qualify for EIS/SEIS tax relief then we can put you in touch with a tax adviser. You should also always look to have this sort of deal fully documented, so speak to us if you need assistance with this.
Tech Angel – intellectual property rights
Next up we had engineer and successful entrepreneur Nigel. This business had created a tech-based product aimed at the personal care sector. The biggest concern raised from this pitch was why the products which the Dragons had been presented with had a different name from the business. As it transpired, the business has started to use a name for the product which was owned by someone else, and had been asked to stop doing so.
As Deborah Meaden correctly pointed out, it is fundamental to any new business to carry out detailed research to determine whether anyone else out there is using a similar brand. Having to go through a rebranding exercise at any point is painful and you should as a priority ensure that your business has IP protections in place.
Waterblade – strong contracts
The second Nigel of the night was another engineer who had designed a product to assist with water use reduction. The Dragons were initially impressed with the IP protections that were in place, including patent applications, and also that a distribution agreement was in place. However, when pressed by Jenny Campbell on what remedies were in place in the contract with the distributors if they failed to meet the specific sales targets, it became apparent that there were no such remedies.
It is important to have strong and robust commercial agreements in place in order to protect the business and ensure that your distributors are able to deliver what they promise.
ShakeSphere – putting conditions on an investment
Rick Beardsell, a very successful track and field Masters athlete, grabbed the Dragons' attention with the protein shake sports bottle which he designed for the ever expanding health and fitness market. There were some grumblings around the quality of the product, however this did not deter both Deborah and Tej from making an offer of investment.
This was the second investment offer of the evening where the entrepreneur negotiated to buy back some of the shares from the Dragons after they both respectively receive 'their money back' from the investment. Another condition which the Dragons attached to this investment deal was that they had to be satisfied with the quality of the product. These are both conditions which would need to be documented as part of the investment deal, so we hope that Rick takes proper legal advice to guide the business on this.
That's us for this season, however there is the promise of another season commencing later on in the year and so watch this space for the new season legal eagle thoughts.