Episode 5 of Dragon's Den / The Apprentice
In this week’s Dragon’s Den, former international tax lawyer Natalie Quayle pitched her dental kit business SmileTime. Natalie was looking for an investment of £50,000 for a 2% stake in her business. The Dragons were impressed with her sales figures of £1 million in the last year, but took issue with how easily her kit could be replicated by competitors and sold at a cheaper rate. Natalie had a great answer and stressed her customer service was the reason so many users loved her brand and emphasised her 20% customer return rate.
However, cracks started to appear when it became evident she had not been able to secure the domain name for her business which led to three of the Dragons dropping out. All was not lost though as she received offers from Steven Bartlett and Touker Suleyman and in an unusual turn of events Natalie asked the Dragons if they’d be willing to team up for 10% each in the company. It was not lost on the Dragons that Natalie gave away 10% more in her company than she needed to, demonstrating that sometimes companies are willing to part with more equity if they feel an investor is the right fit.
It’s important to be careful here as well and not give away too much equity away early on as it can have devastating effects for the company’s cap table later on. There may be issues down the line where as founder you are left with an increasingly smaller piece of the pie which means you’ll receive far less in the event of an exit. It’s always good to seek advice on how to structure your investment so you can understand market norms.
In what might be deemed “the business that go away”, up next was Nick Johnson and Nick Graham of Berczy Drinks, a British answer to the Seltzer trend dominating North America. They were looking for £120,000 for a 10% stake in their award-winning drinks business. Whilst the Dragons loved their product, they couldn’t get over the risk factor and were concerned when the pair admitted it could take them four years before they start turning a profit. There were also concerns again relating to how easy the idea would be to replicate for the big drinks businesses which meant that Berczy would have to get their product to market as quickly as possible with no time to waste.
However, the Dragons all acknowledged at the end that this might be one of those business in which their future selves will regret not investing. This just proves that even if you hear “no” from prospective and credible investors, there are always other options and we are sure the duo will be contacted over the coming months from investors and customers alike!
We also heard from siblings Chris and Mike. They were looking for an investment of £100,000 for a 5% stake in their company, pirate island inspired escape rooms that they had dreams of rolling out worldwide. The Dragons were initially impressed with the game and were seen to be having fun. However, the duo stumbled when the Dragons probed them on their plans for rolling the escape rooms out. They had decided on a franchise model and the duo explained that it would likely take a franchisee 10 years before they made their money back and started to turn a profit. There was also concern around how easily their concept could be copied and given how long it could take franchisees to start turning a profit. The Dragons became hesitant and one by one they started to drop out with the famous “I’m out”. Deborah Meaden made clear that the duo should reconsider their franchise model demonstrating why it’s so important to have a good grasp of all your options for expansion and be open to other ideas.
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