Dragons’ Den SA episode 5: from a concrete business to wasted energy

The South African version of internationally-renowned reality TV show Dragons’ Den is now well into its first season. While the dragons didn’t really get into their groove at first (something which can at least partly be chalked down to the quality of entrepreneurs on display, things have improved rapidly.)

Don’t get us wrong, it’s still first and foremost entertainment, but there have at least been some investments that look set to make a big difference to some promising South African startups, and the show’s also managed to uncover some potentially game-changing entrepreneurial talent. Whether that talent would’ve merged on its own is up for debate, but there’s no doubt that a platform like Dragons’ Den is good for getting you into the public eye very quickly.

With that in mind, it’s time to recap what went down in episode five.

Building South Africa (literally)

Opening up this episode’s pitches was Thembinkosi Phillips, who was pitching for R2-million in exchange for a 40% stake in his business, which aimed at manufacturing concrete products for South Africa’s low-cost housing sector.

The money, he explained to the dragons, would be used to expand into the manufacturing of building blocks for the sector. The full cost of setting up the plant would be R3.9-million, leading CEO of business advisory group Identity Partners and Director of South African Venture Capital Association Polo Leteka Radebe to question where the balance of the funding would come from.

She was however placated when Phillips revealed that he would be investing the balance himself. He also seemed to have everything under control when the dragons started questioning him on his business margins.

Gunguluza Enterprises & Media head Lebo Gunguluza did however have concerns around the business’ cash flow. Of particular concern to the media mogul was where Phillips’ money came from.

When the entrepreneur indicated that most of his contracts came from government, Gunguluza voiced a concern familiar to anyone who’s done work for the state: “My issue with this business is it takes long for you guys to get paid,” he said.

While it is the nature of the space, it is a valid concern so while Gunguluza did offer to work with Phillips through his own construction interests, he declined to invest.

The Creative Circle CEO Gil Oved was undoubtedly impressed by Phillips, saying that “Investors should never make the mistake of judging a book by its cover,” but he said he simply didn’t have the expertise to get involved. The same was true of Yola and Gyft founder Vinny Lingham.

Public speaker and private equity partner Vusi Thembekwayo meanwhile had to dissociate himself owing to a conflict of interest.

Radebe eventually made an offer on condition that she have her money back within the next three years and be allowed to sell out in year five. Phillips, naturally, accepted.

Clearly the producers are mixing things up, because this is the first time we’ve seen an investment made straight away.

Injecting a little energy

Next into the den was Trisha Chaza who, at 23, is pretty young to be have chosen the energy sector as her entrepreneurial focus. Chaza was looking for R1-million, in return for a 40% equity stake, to kickstart her business manufacturing charcoal from reject wood for light industrial purposes.

According to Chaza, there’s a definite case for the business given the large amounts of reject wood being burned at sawmills around the country. She also told the dragons that she would use the soot byproducts of the process for other applications such as the manufacture of creosote for coating telephone poles.

We could immediately see a couple of problems with the idea and so could the dragons.

Gunguluza was the first dragon to identify a possible issue/ “I want to know… have you ever run a business before?” he asked her,” have ever had any experience in this sector before?”

A negative answer on that front clearly had the dragons’ backs up. An inability to explain exactly what the investment would be used for meanwhile only pushed them further away.

“As an investor, I have a problem with you not knowing these numbers,” said Lingham.

Given Chaza’s inability to get those basics right, all the dragons were out.

Managing the grid

Chaza wasn’t the only looking to spark a South African energy revolution though. Herbert Nderezina and Ajay Bissessur were next into the den, hoping to sell the dragons on their electricity generator. The pair came in asking for R600 000 in return for 20% equity.

The system uses a combination of solar power and water to generate power, with the two entrepreneurs suggesting that it could eliminate the perennial South African problem of load-shedding.

Interestingly, this was one instance when the investment the entrepreneurs were pitching for was probably a bit low. “R600 000 I suspect is very little for what this could become over time,” said Radebe.

Things started to fall apart under a grilling from Oved though, with the two business partners appearing to disagree about whether the system was ready or still at the prototyping stage.

All the dragons felt that the system was too complex and would burn too much capital for their blood so they were, once again, all out.

Throw out your gate remote

Following that set of under-prepared energy dreamers in to the den was Bradford Braithwate, pitching 20% equity in return for a R200 000 investment in his business. Called Flick-it, the technology enables you to open your electronic gate or garage by flicking your car’s headlights on and off.

Given that Braithwaite came in with something already patented, and a working model, things seemed promising.

When he revealed that he wouldn’t be willing to dedicate too much time to the business in case he got bored however interest rapidly faded and all five dragons were out.

Once again Gunguluza appeared to sum up all their feelings, asking: “How do you park such a brilliant idea over so many years?”

Sometimes you’ve got to be prepared to burn ships.

Water, water everywhere

Sibusiso Ngema was up next, asking for R2.5-million in return for a 20% stake in a water treatment plant.

Unfortunately his pitch was so incoherent that none of the dragons appeared to understand exactly what it is the business does.

“I am so confused, you will not believe it”, said Radebe.

Further clarifications only increased the confusion, prompting Thembekwayo to give Ngema a quick lesson in pitching.

“Here’s pitch lesson 101: never speak industry jargon when you’re speaking,” he said.

Oved meanwhile felt the need to add his own lesson: “Come with imagery, come with samples, come with product,” he told Ngema.

Do we really need to tell you that all the dragons were out on this one?

Something fishy

How do you catch a dragon? Well a good business plan is a start, but it’s not enough. Even with the best business in the world, you have to show some kind of entrepreneurial spirit, otherwise you won’t get investment. Don’t believe us? Go ask father and son double act Casper Kruger Junior and Senior, who were offering R1 million for 15% of their fish farm, HBP Fisheries.

Unlike many of businesses pitching on the show, HBP fisheries is pretty well established, having been around since 1978.

The pitch was however for an addition to the current business, which would take the shape of an aquaponic fish farm.

Things appeared to be on the rocks when the Krugers couldn’t articulate what kind of dragon they were looking for and what they hoped to get out of the dragons.

Another concern, raised by Oved, was that the second business — which the Krugers were looking for investment in — depends on the first, which they own outright. This he felt, would incentevise them to charge the second business more than the first.

After a fair amount of wrangling, it emerged that the Krugers have another business selling the aquaponic farm concept and it was that which Oved wanted in on.

The Krugers turned down that offer, being unwilling to give away the equity.

Lingham seemed to nail down the problem with their business: “The bottom line is, we’re professional investors,” he said,” but you guys aren’t professional entrepreneurs, you’re a family business”.

All the dragons were, once again, out.