What Can We Learn from the Latest Series of 'Dragons Den'?

Raising money for early stage companies has always been challenging and one of the few avenues open to entrepreneurs has been Angel Investors. Whilst Dragon's Den has a theatrical touch to it the essence of the process is very similar to many Angel Investor events. Businesses looking for money have a very limited time to make a clear pitch to potential investors and then field questions about the opportunity. After advising a number of entrepreneurs about raising money through this route, Colin Mills and his 'Finance Director' colleagues at The FD Centre have a number of pointers for budding entrepreneurs thinking about angel investment.

• First impressions really do count. Determined entrepreneurs have a certain look in their eye - a hunger, a determination to succeed and a passion for their business coupled with an open and friendly personality. Serious angel investors identify this immediately and are immediately attracted to these characteristics. However, if you are overly defensive about your business you will be perceived as blind to criticism and "uninvestible". The cleaning company in the North East was a classic example where Duncan Bannatyne saw the determination and passion and knew that the business would succeed. Angels primarily invest in people and a good idea is generally secondary.
  
  
• The business opportunity for the investor is very different from the opportunity for the founder which is different again for the potential customers of the business. Many entrepreneurs find themselves with a narrow perspective of the opportunity. Serious investors are not blinded by the passion for the product. The investment opportunity has to have a clear return on their investment and ultimately most angels will only invest when there is a clear exit opportunity. Therefore, the best tip for entrepreneurs is to demonstrate that they understand the angels' requirements by identifying their likely return and the exit for them to realise their gains.
  
  
• Investments in start ups that have not made any sales are extremely difficult to justify and more often than not are seen as a complete punt. If at all possible, entrepreneurs need to have some sales on the board to demonstrate the initial steps in business have been taken successfully.
  
  
• The Dragons' are pretty ruthless about poorly presented businesses. Anyone pitching their business has to know the market they are working in, their selling prices, costs and break even points. An intimate knowledge of competitive and complementary products is essential to demonstrating an understanding of the industry in which they will compete. In most cases, similar ideas will have already been tried by others and the Angels may have already come across similar ideas, so be prepared.
  
  
• The application of the funding sought must be clearly set out so that an Angel understands where his hard earned cash will be invested.
  
  
• Choice of business is important. Some Angels will only invest in areas that they think they have expertise or where where they can immediately add value to that business. Some product inventions must have patent protection if real value will be generated by the business. The most disruptive products, ie. those that ask consumers to dramatically change their behaviours or buying habits are the highest risk as the distance between a hit and miss product can be very small but the difference in return is dramatic. More often than not these opportunities require significant funding for marketing.
  
  
• Finally, but by no means least, sector knowledge and experience is a major plus point for Angel Investors. If you have this, let it be known.

 

If you are an established business and need help preparing for funding then help is at hand at The FD Centre.

In summary - be prepared, be determined and be nice, and good luck.

 

Entrepreneurial Vision - October 2009 - Contents Page