Guest blog by Jenny Campbell on how she made her investment decisions on Dragons’ Den.
Having been a fan of Dragons’ Den since it first aired in 2005 I was absolutely delighted and proud to have the opportunity of becoming a Dragon myself. I joined the show for the 15th series in 2017 and I invested in some brilliant companies. I now want to share some advice for entrepreneurs hoping to become a success on the show.
“Live by corporate standards, but breathe like entrepreneurs…”
– my favourite business motto
I invested in businesses and entrepreneurs who I believe I can add real value to. I recently stepped down from the show after two very enjoyable years and now I’m looking forward to working with each of them closely over the next few years.
Lots of people ask me how I choose who to invest in on the Den. So here goes!
How I choose my investments
What am I looking for when someone comes into the den? We see 100 pitches over five weeks. First of all that can get quite heavy in a day! The pitches are up to two hours each, and you’re looking for an investment in something that meets your requirements. I was always taught by a previous chairman of mine about four key things:
- The product – do you like it?
- The entrepreneurs – can you work with them?
- The price – is it right?
- The exit plan – when will you see your return?
1. The product
Firstly, you’ve got to like the product that you’re investing in. I was looking to make an investment in something that’s my thing. There’s no point if you see a great product but you don’t actually like it. You have to know and understand the product.
2. The entrepreneurs
Once you understand and like the product, you have to look at the entrepreneurs and think do I want to work with them? Can I work with these people for the next 5 years or so? Even if you like the people but not the product or the other way around it’s not going to work because you need both.
– Can I work with these people for the next 5 years?
So you need to have a different point of view and think yeah I can work with these guys, y’know I feel I can trust them. Then there’s how much time will they need from me and whether I can give them that time etc etc. It’s all about the entrepreneurs because you need to trust them to do the job.
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3. The price of the investment
You have to get in at the right price for the investment. I think the walk away point is not necessarily when you’re nipping and tucking the deal but there is definitely a point you think crikey, I’m only going to get point something of a percent. Is it really worth it?
You’ve still got to do due diligence on the business so there is a point where it goes below our appetite. I think the biggest risk of losing it is when something is said in the negotiation which makes you lose faith in it, suddenly your appetite changes. That can be anything from a stubbornness on behalf of the entrepreneur to even negotiate. Or sometimes you get a sense they have no room to manoeuvre because of their shareholders. It’s almost rude to come in the den when you don’t have any room to manoeuvre.
Maybe the entrepreneurs in front of you can’t agree but they’ve shown they’re prepared to negotiate, and negotiate hard. This can be a good thing. I like the hard negotiations because it shows the entrepreneurs skills.
4. The exit plan
Crucially, and the thing that most people forget is the ‘get out’. Y’know you’re not there to be the banker for a few years. You need to crystallise your investment and return. So what’s the exit plan? There’s a lot of businesses where the entrepreneurs are still running the business in 10 years time and you’ll still be in with them as a shareholder. It should have crystallised by then. I would want a return on my investment after 3-5 years.
Investment due diligence
After the show we undertake due diligence and not everyone makes it through. On Dragons’ Den I offered investment in a dozen companies and, following the rigorous due diligence process, only four investments were confirmed. That’s only 1 in 3 of the companies I invested in on the show that actually made it through the whole process.
But my four final investments met all these requirements and more!