HM Insights

Legal Eagles & the Dragon's Den: cushions protect against a hard fall

Surviving between seasons of Game of Thrones can be a challenge, so to keep up our dragon fix we thought give the BBC's attempt – Dragon's Den - a go on a Sunday night. Okay, we quickly realised it's not that kind of dragon, but now that we're watching we thought we might as well share the benefit of our legal knowledge with Den entrants.

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.

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Last night (September 10) the contenders came with the next big thing in towels, drinking water, packaging and cushions …

Have you protected your brand?

First up we had Ben and Andy from Dock & Bay, a microfibre towel company. The business had enjoyed success to date, achieving profits of over £300,000 in the previous financial year which helped it secured an offer of £75,000 from Deborah Meaden.

However, as the Dragons highlighted there are few barriers to entry for other potential competitors in this market so building a brand and protecting it is important for the business. With this in mind, before the investment completes I think Deborah will be enquiring about what Dock & Bay have done to protect the brand and whether or not it has a trade mark.

Are the commercial terms with the supplier correct?

Next into the Den was Phil from Thirsti, a business which had developed a device to remind you to drink more water. A key issue for Phil was the costs – it transpired in the pitch that the product was costing £9 to make and he was aiming to sell it to distributors for £13 and directly to the end customer at £34.95. The Dragon's felt that £9 to make the product was too high and a better deal could have been done with the supplier. Unfortunately, the business was tied to its current supplier and hence the high cost of production.

In the vast majority of investment deals the question will come up sooner or later – have you any long term and onerous contracts? As such, pick your suppliers carefully, do your diligence and review carefully the terms of any contract.

Have you got a shareholders' agreement?

Long term friends Neville and Derek were next in the Den with a packaging business called Dubble Bubble. The duo had developed new packaging and had a number of patents to protect it. The business ended up leaving the Den without an offer of investment as the Dragons were nervous about the lack of customer orders.  

However, I wondered what Neville and Derek had done to help reduce the chance of dispute. We often hear clients say we won't fall out - we have been friends for years. Unfortunately, however, it is often relationships with a long history that can end up in the most entrenched disputes. Irrespective of how long you have known someone it is always a good idea to get advice on what would happen if you disagreed with one another and to think about getting a shareholders agreement in place.

Are the terms of the licence agreement correct?

Finally into the Den steps Entrepreneurial Spark-enabled Sarah from Love Bomb Cushions. Sarah successfully got an investment offer for her emoji cushions business. In the pitch Sarah explained that she had a licence from the emoji company. As the deal progresses I suspect this licence will be key and in these types of situations the terms will be looked at carefully by investors, including the length of it and whether it is exclusive.

Many early stage companies don’t get advice on contracts as they are concerned about the costs of speaking to a lawyer. I recommend any business gets advice on its contract, particularly the key ones that underpin the business.  As with Phil and the supplier contract if it turns out the contract does not work for the investor it could be a problem.

Get in touch

If you are a growth business seeking investment, or recognise any of the issues we've highlighted as potential concerns for you, please don’t hesitate to contact a member of our team.