Inside the Dragons' Den

Attention Toronto Fans

ATTENTION DD FANS --- YOU ARE INVITED!!

The Toronto Venture Group, agrees that Dragons' Den is more than just reality TV, and believes that entrepreneurs can learn a lot from the show.

That's why, on Oct 11th, in Toronto, they are dedicating their monthly breakfast series to the show and what can be learned from it, or as their invite says:

Wednesday,  October 11, 2006
7:30am - 9:30am

"Lessons From The Dragons' Den"

What a Reality TVG Show can teach you about Raising Capital
A "Behind the Scenes" look at pitching and working with high wealth investors.

According to this month's issue of Profit Magazine - the CBC's new prime time reality-TV series the DRAGONS DEN - is turning the high-stakes investment pitch into prime-time entertainment.  More than 1500 contestants from coast to coast tried out for the chance to pitch before 5 multi-millionaire investors.  Some got paid - most got slayed.

In October, the TVG will go behind the scenes of the Dragons' Den, with the show's industry adviser and online host, Sean Wise.

If you'd like to attend this multimedia extravaganza, it is open to the public, you can register here: https://www.showreg.net/TVG0610

Or for those in the London area, I'll be delivering the same material at the London Small Business Centre's Bridges to Better Business event on Oct 18th, you can register for that here: http://www.sbcentre.ca/bridges.html

Hope to see you there!

Want to learn Lessons from the Den?

We are now less than two weeks away from the premiere of Dragons' Den and buzz behind the show keeps rolling on.

The Toronto Venture Group, agrees that this is more than just reality TV, and believes that entrepreneurs can learn a lot from the show.

That's why, on Oct 11th, in Toronto, they are dedicating their monthly breakfast series to the show and what can be learned from it, or as their invite says:

Wednesday,  October 11, 2006
7:30am - 9:30am

"Lessons From The Dragons' Den"

What a Reality TVG Show can teach you about Raising Capital
A "Behind the Scenes" look at pitching and working with high wealth investors.

According to this month's issue of Profit Magazine - the CBC's new prime time reality-TV series the DRAGONS DEN - is turning the high-stakes investment pitch into prime-time entertainment.  More than 1500 contestants from coast to coast tried out for the chance to pitch before 5 multi-millionaire investors.  Some got paid - most got slayed.

In October, the TVG will go behind the scenes of the Dragons' Den, with the show's industry advisor and online host, Sean Wise.

If you'd like to attend this multimedia extranavanza, it is open to the public, you can register here: https://www.showreg.net/TVG0610

Or for those in the London area, I'll be delievering the same material at the London Small Business Centre's Bridges to Better Business event on Oct 18th, you can reigster for that here: http://www.sbcentre.ca/bridges.html

Hope to see you there!

The Elevator Pitch

Dragons' Den is not just about good TV. It is also about helping to educate the general public, and in particular aspiring entrepreneurs, about what it takes to raise capital.

To facilitate such, the CBC has created a pitchers' bible.  If you are looking to raise capital for your business, this is a tremendous resource, and definitely the place to start.

But wait, that's not all.....they've also created exclusive video footage to further assist aspiring business moguls.  First up in the series is a clip explaining exactly what an Elevator Pitch is, what it must have in it and why you need one.  This clip was written, shot, edited and produced by the very talented Mike Armitage, Associate Producer with the CBC. For more on Mike, click here: http://www.insidethedragonsden.com/2006/06/meet_mike.html.

Now, what are you waiting for....PRESS PLAY!!!

So as you can see an

Elevator Pitch = Pain Statement + Value Proposition

and every great elevator pitch meets these four criteria:

1. succinct
2. easy to understand
3. greed inducing
4. irrefutable

For more on Elevator Pitches, give this a read: Download i_pitch_therefore_feb.pdf

Clear Communicaton

On the set of Dragons' Den, contestants only had a few minutes to garner the interest of the Dragons.  Many complained, without realizing that this is exactly the same in the real world, where typically Angel Investors and Venture Capitalists only give a pitchers a few minutes to resonant with them. 

This week, I attended a seminar by Dave Grey, founder and CEO of Xplane, which specializes in creating clear concise messaging through the creation of pictograms, a/k/a the Back of the Napkin Diagrams. Grey shared his secrets for

turning this:        into this:

For more check out on Grey and how to create pictograms check out the other blog, WISE WORDS. I know some of our unsuccessful contenstants really should.

DD: Lesson #3 - How much is it worth?

When the CBC approached me to help them with the show, one of the roles they asked me to fill was to share real life investment wisdom with the potential pitchers.  One of the topics that seems to be a mystery to pitchers is "How much is my venture worth?" and the related question, "What percentage should I offer the Dragons?"

Complicated questions to say the least, but let's start with the basics:

• Pre money valuation = how much is your venture worth before investment
• Post money valuation = how much is your venture worth after the cash is put in
• Post money valuation = amount invested + pre money valuation
• % owned by investors after investment =  (amount invested) divided by (post money valuation)

ex. 

• If you think your business is worth $100,000 today and you want to raise $50,000, then the post money valuation would be $150,000 and the investors would take 1/3rd or 33%. 
• if you want to give away 10% and are raising $50,000 from investors, then the pre money valuation would have to be $450,000.

This of course seems easy. Well it is, but that's because we haven't hit on the $1,000,000 (no pun intended) question....how does one set "pre money valuation".

According to www.vcexperts.com:

The valuation of a company prior to a round of investment. This amount is determined by using various calculation models, such as discounted P/E ratios multiplied by periodic earnings or a multiple times a future cash flow discounted to a present cash value and a comparative analysis to comparable public and private companies.

But the truth is that the above is a load of crap and only works with later stage companies with years of revenue and other related metrics.  You can't use it for pre revenue start-ups, and I'd argue it is isn't really used by any early stage investor.  So how is it done.....the investors make it up!

No really, they make it up. Valuing pre revenue start-ups is an art not a science. Generally it based on factors intrinsic to your venture (what traction do you have? what IP do you have? how strong is management? etc.) and on factors intrinsic to the inivestor (how does it compare to other investment opportunities being considered? how does it fit within the sweet spot of that investor? what is that investors risk/return ratio?). A lot has to do with terminal value (how much can the venture be sold for at a later date) but sometimes it is just a gut check amount.

So what is an entrepreneur to do? Well generally I advise that when asked for valuation, you answer with "the company is worth, what some outside investor will pay for it, that I can get my board to sign off". Sounds lame? Well you don't play poker showing your cards, so why show them here.

However for the show, you need to give an answer, so here are some benchmarks to get you started:

• most investors either want to take 30% of any deal or 51%, depending on their style of investment and the stage of the company
• most pre-revenue companies are not worth more than a million dollars (and that is only if the product is ready to go)
• most concept companies (i.e. only an idea) are worth at most 2-3x the amount of cash being asked for
• most companies are worth 3-5x that amount of actual cash (including tax credits) that has been invested to date
• it doesn't really matter, since this is a negotiation point and the real question is...."If I don't take their money, what other options do I have?"

Remember, it is always better to own less of a huge pie, than all of pie that is worthless.

Hope that helps!

for more on pre and post money valuations, zip over to:

http://en.wikipedia.org/wiki/Pre-money_valuation

http://www.antiventurecapital.com/math.html

http://www.investopedia.com/terms/p/premoneyvaluation.asp

DD: Lesson #2 - Listen to Instructions

As we prepare to launch auditions in Calgary, Edmonton, Ottawa and Montreal (click here for full details) I feel the need to remind people of the GOLDEN RULE. 

    He who has the Gold, makes the Rules!!!

Now this may seem trite, but after watching more than 100 auditions so far, I can tell you it needs to be revisited.

People, please....listen to instructions.  When pitching investors (or in the case of the auditions, potential investors) you need to accept that fact that instructions are not optional.

In the case of auditions for Dragons' Den, you get 3 minutes to tell us:

• your name
• the name of your venture
• what your venture does (IE what is the problem you are solving, and how are you solving it)
• how much money are you looking for
• how much (%) of your company are you willing to give investors in return for that cash

and then, and only then if you have left over time, can you elaborate.

It really is that simple. Yet potential candidates continue to give us everything but the above.  I'm not sure why, but I can tell you this happens in the "real world of investing" too.

Venture Capitalists will tell an entrepreneur that they have an hour and need to see X, Y, and Z and then the entrepreneurs will come in, blab on indefinitely about everything but X, Y and Z. 

I see this all the time on stage at venture fairs.  Presenters know they have 10, and only 10, minutes, yet they try to present 30 slides and get offended when the moderator cuts their mic after 11 mins.

This also happens when dealing with investor documents.  When an investor asks for an executive summary...you send her an executive summary, not a business plan, not a patent application, not a spreadsheet....AN EXECUTIVE SUMMARY, and just the Executive Summary.  Is that so hard? And if it is, what does it say about your ability to work with the investor.

As much as you need to be in control as an entrepreneur, there are rules of every game, including the investment game, and just like in auditions for the Den, you need to not only be aware of these rules, but you need to FOLLOW THEM......PLEASE!

DD: Lesson #1 - the Elevator Pitch

One of the secondary purposes of the Dragons' Den show is to help educate and improve the entrepreneurial community in Canada.  And after watching a few hundreds pitches, I can tell you some schooling is definitely needed. 

First up, how to pitch in under 3 mins.

A short pitch, often called an elevator pitch, needs to contain two key elements:

1. the pain statement - what problem you are solving;
2. the value proposition - how your solution brings value to end users.

and in doing so, the elevator pitch has to be:

1. succinct - less than a minute, no more than 2 run on sentences;
2. easily understand - no techno babble, both your grand kid and your grand pa should get it;
3. irrefutable - don't make statements you can't back up; and
4. greed inducing - use numbers and stats to let the potential investor know how much money there is to be made.

And that, ladies and gentlemen, is it!!! Nothing more complicated than that.  If you want to learn more, check out the column I wrote a few months ago for the Globe and Mail, explaining (in more detail) how to craft a strong fundable elevator pitch.  Just click here.

Alternatively, there is a lot more on the topic, in my firm's library, just go to www.WiseMentorCapital.com and look under the library tab.