Entrepreneurs seeking to grow their startup get the money from a number of sources, family and friends, crowdfunding, angel investors, Venture Capitalists and IPO’s. Considering all the avenues why would a startup founder seek money from a reality show, i.e. Dragon’s Den and Shark Tank?
You’ve seen the slick presentations before some of the world’s most powerful entrepreneurs like Daymond John (FUBU) and Kevin O’Leary, aka ‘Mr. Wonderful’. You have no doubt seen the insecure founder who is wasted by the reality checks both personal and business the Dragon’s dish out. Dragon’s Den has been compared to auditioning sacrificial virgins.
The slick presenters often go before the Dragon’s and Sharks with everything in place (including the money) but want the exposure from being on an international stage pitching their innovative idea. Some consider this a waste of a good opportunity for those actually needing capital but hey it’s television and anything goes. Others go to these reality shows with the hope of catching the Dragon’s money with their passion and the excitement they hope to generate in their presentation. Few will pass the Dragon’s initial scrutiny let alone the ensuing due diligence.
The premise is admirable giving a startup the chance to secure money and advice from the world’s best. In Canada, Dragon’s Den (DD) has been a staple of CBC for 12 seasons. DD is so popular in Canada that Mark Burnett (Survivor) actually hired Canadian producers and two ‘Dragons’ (Herjavec and O’Leary) to be part of Shark Tank USA.
Like the viewing audience, the Dragons quickly size up the founder as he walks the long path to the presentation area. Like ‘America’s Got Talent’ they are often mistaken by first impressions. Unfortunately, most fail for a number of reasons.
They fail because their product is ill conceived, management sucks, unrealistic expectations and a high evaluation that is not borne out by sales or previous investment, pretty much the usual rejection criteria by a legitimate investor.
Legitimate? Certainly, of the number of deals accepted by both parties most fail due diligence. Either the claims by the founders are outrageous, unfounded or unproven or the Dragon’s extensive due diligence finds issues to reject the deal. Please tell me that ain’t so!
Real deals are done on these shows. Brett Wilson, a Canadian Dragon for 3 years, was called the “dragon with a heart” because of his sympathetic approach to founders. He ok’ed 60+ deals in those 3 years (closing on only 30) with a total investment of $4.5M of his own money.
I’ve had several clients appear on the Canadian Version of Dragon’s Den and their stories and presentations, for the most part, made them look like idiots. One realizes it’s a reality show and concessions must be made for entertainment value but my clients believed they would get a fair hearing.
Everyone signs a non-disclosure agreement that makes them agree not to divulge the machinations and results of the ‘show’ until their segment appears on TV. This may be many, many months. Obviously, the entrepreneur will continue on their dally routine once they return to the real world and the answer to the inevitable question – did they get the money – is all over their faces.
One of my clients, let’s call them Bob and his lovely wife Jane (to protect their embarrassment) had the misfortune of appearing on one episode. They owned a national condom distribution company that was unique because it lacked the ingredient Casein that causes allergic reactions to some users. The producers asked my client, Bob, to show up for taping wearing a full body condom suit for entertainment value. If you knew Bob, he is a serious guy and nothing would make him appear ludicrous in a condom suit.
In the one-hour presentation (edited to 4-5 minutes) the early welcome turned into a ‘shark’ fest. Camera angles and cuts to Bob looking uncomfortable or failing to answer questions quick enough made us feel for Bob and Jane but gave the Dragon’s fodder to sweep them under the carpet. I assume making Bob look bad was the producers’ way of giving him the finger for not wearing the condom costume.
They failed to get any money despite being in national chains and without the needed capital for inventory went out of business within months. With Bob’s dream dashed and his confidence killed he closed the company and became an electrician – a real career! He’s not bitter because he realized being an entrepreneur is being able to roll with the punches and his temperament lacked the confidence to continue.
From my other clients their experience on the show was equally disturbing. Awkward camera angles, snide comments, and miscues on both sides make the deals hard to complete.
The biggest mistake pitchers make seems to be in the evaluation of their business. The young woman with the cool app wants $300k and offers the Dragons 10% of the company. With no sales and just a half-baked idea no one would evaluate her business at $3MM. The founder’s answer is always – “but it has the potential.” That’s not an answer in the investment world.
The participants are chosen for entertainment value and are designed to capture our hearts in a tender moment, laugh at a poorly conceived idea or feel empathy when they are stripped of their dignity in front of the Television audience. I enjoy watching both Dragon’s Den and Shark Tank because there are gems that come out of the pitches.
There are legitimate winners that come out of the Den. Awake Chocolate a small company from Toronto pitched their caffeine-enriched chocolate bars to the panel. With an above average milk chocolate enriched with tasteless caffeine, it was pitched to the Dragons as “Kit-Kat meets Red Bull.” Two of the five Dragons invested and the company has seen $2 million of growth in sales since the show.
OMG’s another chocolate company (is there a pattern here?) and former creator of Clodhoppers got a great deal. Dragon maven Arlene Dickenson offered them $250,000 for 50 per cent equity and the treats are now sold across the U.S. and Canada earning everyone millions.
As I said not all the deals close but that doesn’t mean the founders lose. Some gain traction from the publicity and find money elsewhere. A case in point is Holy Crap Probably the most successful company to hit the Den. The gluten-free, lactose-free, vegan breakfast cereal caught attention with its unique name, Holy Crap. Dragon Jim Treliving offered “whatever you want” for a deal. The deal collapsed when the founders realized they had to move from their idyllic ranch in the boonies to the hustle of Vancouver. Sales in 2014 were reportedly $20 million and NASA astronaut Chris Hadfield famously ate a single-serve cup aboard the International Space Station.
Some founders get caught up in the deal making in the heat of the moment and take crazy offers from the Dragons. When cooler hearts prevail they find financing elsewhere.
The bottom line is founders go for the opportunity to pitch their idea for a variety of reasons and we watch for as many reasons. Is it a viable financing model? Of course not but it educates wannabe entrepreneurs watching from home, gives us a heads up on new innovation and reminds us that the power of entrepreneurship is alive and well.