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Dragons’ Den SA Episode 4: from patchy to pitch perfect
I recently came across a tweet by former England rugby player Brian Moore which, I guess, sums up how a lot people feel about Dragons’ Den in all its various incarnations:
Anyone else of the view that real entrepreneurs simply start up their own businesses, rather than applying to be on a TV show to be one?
— Brian Moore (@brianmoore666) October 13, 2014
Whether or not you agree with Moore, there’s no getting around the fact the shows like Dragons’ Den are incredibly popular and provide a massively useful springboard for many of the entrepreneurs who appear on it (if only for the sake of the publicity it provides). Four episodes in and that appears to be as true of the South African edition of the show as it is of any of the international versions.
Still, if the latest episode reminds us of anything it’s that just because you’ve got the guts to pitch, it doesn’t mean you’re automatically worth investing in.
Is there a doctor in the house?
That wasn’t quite the lesson that the entrepreneurs in the first part of the show, both of whom were in medicine, learned but the ones they did learn were just as valuable.
First into the den was Lester Davids, a molecular cell biologist who’s founded a company called Skin Cross, aimed at growing new skin for burn victims. Although the R2.5-million he asked for in exchange for 15% equity he asked for seems pretty steep, it’s hardly unheard of in the medical space. That said, healthcare isn’t exactly an area of expertise for any of the dragons.
While there are international competitors doing the same thing, Davids told the dragons that he would be able to do it at half the cost and at half the price within 18 months.
The Creative Counsel founder Gil Oved was the first dragon to bite.
“Convince me that this is real,” he told Davids, “because this isn’t worth R16.7-million if it is, it’s worth R16.7-billion.”
When asked to break down what the investment would be used for meanwhile, Davids was a lot clearer in his answer than the vast majority of people who pitch on the show.
Things began to come unstuck however when Davids revealed that he still needed to register the company and negotiate how the portion of the intellectual property currently under the University of Cape Town’s control would come into his hands.
As Gyft founder Vinny Lingham noted, universities in South Africa haven’t really sorted out their IP protocols, making them difficult to deal with when it comes to business ideas.
Despite all the dragons seeing massive potential in Davids and his idea, the fact that it was unclear when they’d see any return on their investment ultimately put them all off.
Next up was Major Gama, of Gama Research Consultants. Unlike Davids, Gama’s business — a clinical trial research consultancy — is actually established.
While clinical research trials are big business, consultancies don’t tend to have the kind of short-term investment returns that major research breakthroughs do. So while the R1-million Gama asked for in return for 20% equity is closer to the kind of figures we’ve been seeing on the show to date.
The most immediate difficulty however was that Gama intended to use the funding to hire new employees.
As Polo Radebe pointed out, there’s a major flaw in that kind of strategy. “You are looking for short-term financing from what I can hear, you don’t have a need to go buy some big machine that’s gonna give you income for the next five years. You just have a cash crunch for a few months,” she said. ” Equity is not normally used for that”.
Another major issue that Lingham saw was that Gama was valuing his business at R5-million despite only having made R22 500 in revenue.
Once again, all the dragons were out.
Looking for a little dignity
Third up in the den was Tshiamo Choene, pitching an idea for what she called “digni-screens” — pop-up structures designed to stop people gawping at accident scenes. Like Gama, she was pitching for R1-million in return for a 20% stake in the company.
The aim would be for the screens to be fitted into ambulance and other rescue vehicles, allowing paramedics and other rescue workers to do their jobs in, relative, peace.
One immediate problem the dragons spotted was that Choene hadn’t bothered to build a prototype of the screen, something which she herself admitted could have been done relatively inexpensively.
Another that was pointed out is that the structure would be incredibly easy to copy. The real nail in the coffin though was what Choene wanted to use the money for — predominantly marketing and R&D.
“So in simple English,” said public speaker and private equity partner Vusi Thembekwayo, “you want a million rand to prove a concept”.
Choene’s lack of preparation meant that it was yet another round of nays from the dragons.
Don’t sweat it
Wow, the producers were really determined to make this episode about medicine and the body, weren’t they? Following Choane into the den was Phiwe Solani, who was pitching nano-technology embedded in clothes. Designed to help eliminate sweaty odors, the technology seems like the kind of thing we were always reading about in future prediction pieces when we were kids. In reality, it’s a little more simple, taking the form of a sleeve insert that releases a scent for up to 24 hours.
Solani came to the dragons asking for R2-million in return for a 45% equity stake in his company, but a lack of any real prototype once again had the dragons backing away. Things fell even further apart once it became clear that Solani had no idea how much it would cost to actually build the product.
Oved summed it up perfectly when he said, “a vision without a plan is just a dream”.
Time for a little pampering
Charmagne Mavudzi was fifth into the den, pitching 3Sixty Mobile Beauty — a mobile beauty salon that offers people hair and beauty services in the comfort of their home.
Mavudzi’s pitch seemed pretty slick and the on-demand aspect of the business — thanks to its app (at the time of the episode still a hypothetical) — appeared to be pretty innovative, making it seem almost like an Uber for styling. She also clearly knows her way around the pitching scene with her request for R350 000 in return for a 30% equity stake one of the most realistic we’ve seen on the show to date.
Despite Mavudzi’s professionalism, Thembekwayo almost immediately declined to invest but that was largely down to the fact that he has no expertise in the hair and beauty space. That said, he wasn’t afraid to argue with Radebe when it comes to the value of the hair and beauty market.
Things got properly interesting however when Gunguluza Enterprises & Media Lebo Gulunguza entered the fray, saying that he would be happy to invest if the business was entirely re-modeled.
“You know, it’s more of a case of betting on the jockey than the horse,” he said, evidently impressed by Mavudzi’s savvy pitch. He then offered the asked for amount, but at 50% equity. Once Gulunguza was in, Radebe seemed happier to come on board, suggesting they invest R175 000 each.
Suddenly the dragons started to get competitive, with Lingham saying that he “would love to steal this deal from Lebo [Gulunguza]”. He then proposed that each of the panel take a 10% investment, alongside the option to invest in Manguzi’s next business should this one fail.
Ultimately that was the deal she went for, and it makes sense too given the array of business acumen it opens her up to.
A pitch perfect ending to a patchy episode then.