Patrick Tatham, founder of PLIQO London Ltd, discusses his recent experience pitching on Dragons’ Den, and shares his top tips for negotiating with potential investors. He also touches on the importance of knowing the true value of your business, and why owners must have confidence in their ideas to succeed in finding external investment.
On Sunday 22nd March, I appeared on Dragon’s Den, BBC TV’s flagship business funding show. Apologies to those who have yet to watch the episode – spoilers lie ahead – but in short, I walked away empty-handed. For many entrepreneurs, this could seem a disheartening outcome. For me however, it was above all a learning experience – the single greatest opportunity to reflect on my business journey than any other experience since launching my brand.
The conventional objective of any investor meeting is to win investment that reflects the maximum inherent value of your business. In my experience in the Den, it is as much the case that the lessons you learn in the studio can be more valuable than the winning of the investment itself.
As with many a pitch, I began with a breakdown of exactly what my business is, and why I believed it would be successful in the years to come. Naturally, this was well-rehearsed. The pitch began well enough, with the Dragons seemingly intrigued by my product – a super-compact folding garment bag, primarily aimed at the high-end business travel market.
My pitch sought £75,000 for 10% of the business, valuing the company at £750,000. A punchy valuation for sure, but one I justified on the potential for rapid sales growth and sustained margin improvement. I believed this was a valid approach for valuing an early-stage business.
The Dragons did not agree, and the conversation became bogged down in the competing merits of company valuation methodologies. I felt the Dragon’s general approach – focusing on a multiple of earnings – was more appropriate for mature businesses than start-ups, many of which don’t generate profits in the early years of trading.
As the negotiations dragged on, the Dragons one-by-one declared themselves ‘out’ – leaving newcomer Sara Davies the only Dragon still in the game. With a flourish, Sara surprised me with an offer of the full £75,000, but for 50% of my business, valuing PLIQO at just £150,000. As a kind of sweetener, Sara then offered to manage down her stake to 35%, on repayment of her initial investment.
Fair enough, you might say, for a business turning over about an equivalent amount. One times sales. Many commentators on social media certainly thought so. But my first reaction was disbelief: this was a valuation amounting to less than the company’s current assets.
Unfortunately, circumstances got the better of me. Rather than bring the other strengths of the business back into play – the brand, the bag’s patented folding system, the 3,000 satisfied customers – the pressure of two years of anxious preparation for the pitch took its toll. I rejected the opportunity to renegotiate; to find the middle ground between my valuation and Sara’s.
Whether the latter approach would have been successful, I cannot know. However, by almost reflexively refusing the offer, I ultimately walked away without the investment I had sought, without exhausting all of the options available to me.
Despite walking out of the Den without the financial investment I wanted, the experience was far from wasted. Quite the opposite. Here are my three most important lessons for fellow entrepreneurs:
1) Be confident
This sounds a cliché, but these types of meetings are a test not only of your business fundamentals, but of your character and resolve. When investors are trying to work out whether to part with their money, you – your vision, passion, authenticity and resilience – are a key part of the package. If an investor ‘low-balls’ you, don’t be afraid to counter with a number that you’re happier with. It may take time and patience, but self-belief can ultimately be infectious.
2) Don’t be afraid to walk away
Walking is always an option; if the right deal doesn’t come your way, stepping away can be the right thing. Sometimes founders feel pressured to accept deals they’re unhappy with for fear that they won’t be able to find investment elsewhere. Or in my case, for looking foolish on national TV. Take the time to find the right deal and right investor for your business. I walked out of the Den without a deal – yet since filming, sales have been robust, and is ticking over even in these very challenging times for small businesses.
3) Know your stuff
As the old saying goes, ‘failing to prepare is preparing to fail’. Indeed, preparing for Dragons’ Den is similar to completing one’s own mini-MBA. For an effective pitch, you need to be the master all aspects of your business: design, sourcing, sales and marketing, finance, operations and legal. And then your margins, your competitors, your markets – domestic and overseas. You just don’t know what kind of curved-ball investors might throw at you on the day. It’s obvious but often overlooked: you won’t be able to defend your valuation, nor push for a more favourable deal, if you don’t know your business and your industry inside and out.
Many negotiations don’t secure a satisfactory outcome in terms of investment – but that is nothing to fear: simply preparing thoroughly for the negotiation is of tremendous value in itself – and will make both you, and your business, stronger.