3 Things That Investors Look For in the Business Pitches of Dragon's Den UK

~ THE EYE ~
Creative Commons License photo credit: KhayaL

Another interesting TV show that I’ve been watching is the UK version of Dragon’s Den.

Realities of Business Pitching

It’s a reality television series about budding entrepreneurs who pitch their business ideas to multimillionaire investors. Some of the wealthy investors include Peter Jones, Theo Paphitis and Duncan Bannatyne. The entrepreneurs want to get a cash injection into their business from the investors in return for a percentage of the company’s stock.

Investors as Dragons?

The investors are seen as the “dragons” in the series, particularly because of their tough questions. The dragons also seem to instill fear and nervousness in many of the entrepreneurs. In fact, a number of the business pitchers bumble over their figures, get confused about their business model, and begin sweating profusely in the presence of the “dragons.”

Lessons from the Business Pitches on Dragons Den

While it’s very amusing to watch the entrepreneurs pitch their ideas, I respect them for actually putting their ideas out there and giving it a go. Many of them fail to get an investment though, but the lessons and the insights from the dragons is invaluable – both for the entrepreneur and for the viewer.

What Investors Look For in a Start Up

Here’s 3 business factors that many of the “dragons” regularly examine:

  1. Competitive Advantage – Often the dragons will ask the entrepreneur about why they think their business stands out above the rest.

    The dragons want entrepreneurs to think about their competitive advantage so that the business will succeed and grow in spite of potential competitors. Some competitive advantages include patents and intellectual property rights as well as the first mover advantage.

  2. Debts and Losses – The dragons will ask the entrepeneur about their financials, including their balance, income and cash flow.

    Many dragons, including myself, are astonished to find that some entrepeneurs will have invested tens of thousands of dollars already into their business or they are tens of thousands of dollars in debt. Many entrepreneurs also experience consistent negative cash flows. Sure, an initial loss is often expected in start up businesses, but a number of the Dragons Den entrepreneurs have experienced losses for several years. Sometimes the losses are tremendous and it is quite sad to watch it. Often the dragons’ advice to these entrepeneurs is to stop the business altogether because the venture is simply not profitable.

  3. Trustworthiness of the Entrepreneur – Interestingly, another major criteria for the investors is the personality of the entrepreneur.

    Even though there are some average business models presented without a compelling competitive advantage, some dragons are still keen to invest in the entrepreneur because of their likeability. A major part of the investor-entrepreneur relationship is the trust between them. Dragons tend to like honest and hardworking people with integrity.

Learn from the Investors and Entrepreneurs of the Den

These are a few of the business lessons that I’ve learnt from the Dragon’s Den show. While entertaining, the series is also a great way to learn about starting up your own business and business pitching.