The Dragons Perspective

The BBC2 show Dragons’ Den is now in its ninth series, and while the show is obviously edited to entertain (more than anything else), it seems as if the current bunch of contestants has not watched any of the previous shows! Week after week they appear – often repeating the mistakes of previous contestants. This article attempts to shed some light on the key mistakes being made and recommends some key changes required by future entrepreneurs pitching to investors. Obviously, the lessons here will apply regardless of which finance sources you intend to approach.

1. Complete a business plan in advance

The first thing that is evident is that many of the entrepreneurs appearing on the show have a business idea, but have no clue as to whether the idea is commercially viable or not. A business plan forces entrepreneurs to cover all aspects of the business – not just the idea. If a thorough business plan has been produced, entrepreneurs should be able to handle most questions the Dragons throw at them. They are not trying to catch the participants out. They are simply trying to assess the opportunity to determine whether it is a credible investment option for them. Usually the idea is easy to grasp from the presentation – what prospective investors really want to understand is whether there is a demand for the product, what the scale of that demand is, and how these markets can be accessed.

2. Know the basics

The investor is seeking to diversify their portfolio, investing in some high-risk ventures in return for some attractive upside return. The entrepreneur is seeking investment to develop the idea further. If the company is currently trading, you will be required to have clear answers as to the current actual turnover, gross profit and net profit. Any vagueness regarding these rudimentary financials will set alarm bells ringing. Any credible business person will be expected to have a grasp of these numbers, and an investor will need to know them to make an informed decision as to whether to invest.

3. Share data and information truthfully

There is an information asymmetry between the entrepreneurs and the Dragons, i.e. the entrepreneurs have a lot more information to hand than the Dragons. The investors have to rely on the data the entrepreneurs provide when they assess the risk and the likely return. Hence, unless the entrepreneurs provide the information in their presentations, the investors are going to be asking for it. The information that is provided had better be accurate, as the due diligence that follows will examine the data in detail and will need to substantiate the figures provided in the Den. While it is natural to not want to divulge a lot of information, without it the Dragons may be reluctant to invest.