Lessons Learned from the Dragons Den (Shark Tank)

If you’re anything like me, you’re glued to the TV when an episode of Dragons Den or Shark Tank is on. For those of you unfamiliar with the show, it’s a show where entrepreneurs “pitch” their ideas to venture capitalists (dragons/sharks) in the hopes of walking away with some money and new partners.

Season after season, it seems that entrepreneurs on the show do not learn from the mistakes of those before them.  Here are some of the lessons learned from The Dragons Den (or Shark Tank for US residents)

1. Know the value of your business – The number 1 mistake that entrepreneurs make when approaching venture capitalists is putting a crazy valuation on their business.  There are some entrepreneurs who put insane multiples of annual sales on their company worth usually based on “emotional” value.  Do the research and find out the accepted multiple of sales/profits for your industry.

2. Be prepared to give up 50% of your business – Every deal that the dragons are interested in, they almost always ask for 50% of the company.  However, for some reason, the presenter always seems surprised by this fact.  Investors want control or at least be a significant partner – be prepared to negotiate for it.

3. Know your Numbers and Details – This coincides with knowing the actual value of your business but one step further.  Know all the statistics of your business, who your customers are, your annual sales/profits and expenses.  Investors need to know the details of your business in order to evaluate the deal properly.  As well, it shows that you are serious about your business and pushing it forward.

4. Get Sales – Before venture capitalists want to invest in your business, it needs to be proven.  That is, it needs to have sales.  How many times have people pitched an idea with zero sales to just have the door slammed on them.  Go out and make contacts, get some sales/contracts, then look for additional capital.

5. Have a Good Story – Even if your business idea is mediocre at best, if you have a good story behind your pitch, it can turn a a maybe, into a possible yes.  There have been numerous times that the Dragons invested in a business because of the person behind it and their story.

6. Know your Dragons/Investors – This is key for any presentation – know your audience.  Know the businesses that the investors own and what they specialize in.  With that, you can tailor your presentation towards the investor/dragon that would match your business best.  Stroking their egos can go a long way.

Do you watch Dragons Den or Shark Tank?  If so, what are your thoughts on the show?

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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brian
10 years ago

UseMyBank went on Dragons’ Den and we turned down the million dollars they offered us. The problem was they wanted 40%. That was way to expensive for us.

We were invited back by the show’s producers to p;itch again!

Look for us in January.

Brian Crozier

ajc @ 7million7years
10 years ago

I buy (or try), back (mostly knock-back), or pitch lots of businesses … your list is spot-on. The reason why we want 50% is control + returns:

1. The aspiring-entrepreneur pitching the idea usually is a technician with a great idea. We need to be able to guide them and replace them, if necessary. I MAY relax the %, but I will want right of veto over any capital raisings/shareholder changes, etc.

We don’t take these steps lightly … on the other hand, if we can make the business make money with GREAT management, then the founder also wins (financially) even if their ego takes a hit.

2. We need a HUGE return on our capital, to cover all the times we lose (7 out of 10) or merely break even (2 out of 10) … for the one out of 10 businesses that breaks out, well you do the math!

BTW: I will also want to be able to trigger a sale, because there’s no way I’ll get my financial returns from cashflows, so you had better have a 3 to 5 year exit plan before you even come talk to me ;)

cannon_fodder
11 years ago

FT,

You’ve summed it up quite well. I, too, find it a fascinating show and I would have to believe, for entertainment value and perhaps for a little wakeup call to would-be entrepreneurs, that they also show some of the worst presenters.

I also like the differing personalities – Kevin is merciless and a mercenary which contrasts with some of the more gentle characters on the show. While I also prefer Dragon’s Den, I could see that Shark Tank will improve as the non-DD panel members get more comfortable. It seems to me that Kevin and Robert get a disproportionate amount of airtime – and I’m sure the American audiences are eating Kevin up (shades of Gordon Gecko).

I would like the show to perform at least once a year a recap of the highlights from the various entrepreneurs – both those that got VC and those who don’t.

I get the sense, though, that the vast majority of the people who are unsuccessful in getting their capital injection also won’t heed any advice given to them. And this advice is rare in that it IS worth something.

Aluminum Case
11 years ago

I don’t really watch Dragon’s Den, but I have seen an episode or two. These kinds of tips are great for anyone looking for an investor. You have to put yourself in their shoes and figure out what they want to hear. You may be sold yourself on your idea, but you need to sell it to them too.

lister
11 years ago

I’ve watched both shows. Shark Tank has two problems which I wasn’t surprised to see since it’s typical for American shows. 1) Some pitchers have backstories. Ugh. I don’t want to see that. I just want to see the pitch and the process of the deal. I don’t want to know the lifestory. 2) The quick editing and showing the facial reactions along with dramatic music. That happens far too much.

Kevin and Robert are good and have carried over what makes DD good. The Fubu and informercial guys are meh. The real estate lady is okay.

Steve
11 years ago

> Kevin and Robert are the best, followed by Daymond (Fubu). The other two are pretty useless.

Are you kidding? Daymond, the guy who can go an entire episode without saying anything? Sorry, but the real estate lady comes third after Kevin and Robert. The infomercial cat is neither here, nor there.

Mat
11 years ago

@ Four Pillars

Dragon’s Den is Wednesday’s at 8 PM on CBC (was on Mondays last year, but I guess they changed it). I’m pretty sure CBC is channel 6 on Rogers in Toronto.

Shark Tank is on ABC, I think Tuesday’s at 8 PM from the looks of the website.

Dragon’s Den – http://www.cbc.ca/dragonsden/
Shark Tank – http://abc.go.com/shows/shark-tank

Brian
11 years ago

Great show! It has some very funny moments. I believe its scheduled for Wednesday 8pm (EST).

Thicken My Wallet
11 years ago

I would add “know the odds are against you.” The shows tend to obscure the fact that the % of people who pitch before investors is most likely in single digits and the % of people who obtain money is a tiny fraction of those who apply.

There were 3813 VC deals in 2007 (a great year for VC financing). That is tiny compared to the number of business plans even one VC firm receives a year.

Four Pillars
11 years ago

I’ve never heard of this show but I’d like to check it out. Can anyone tell me when it is on? And if you know the Toronto channel (Rogers) that would be helpful as well.