Pitching to any investor involves two very important processes: The first is, of course, attracting the investor's attention so strongly that he or she wants in on the deal.
But the second - and probably far more important in the long run - is negotiating over the amount of investment and the percentage of ownership or royalty the entrepreneur will have to give up in return.
Entrepreneurs who talk to investors must be clear about what an investment means. Investors are in it for the money, and so, for most entrepreneurs, a loan, even if it involves interest, would probably be far more cost effective than an investment which requires them to give up a large chunk of future profits.
Certainly, last night's episode - that showcased some of the deals made this season on Dragon's Den - highlighted the importance of negotiation. Each entrepreneur had the Dragons' attention early and then moved on to the fine art of haggling.
Partners Alex Norman, Allan Fisch and Aliza Pulver of Toronto's HomeSav.com didn't have to convince the Dragons they were onto a good thing: they simply had to strike the best deal. It came down to deciding between Jim and Kevin's offer of $200,000 for half their company and Bruce and Arlene's bid of the same amount for a slightly smaller piece of the pie at 45 per cent.
The pitchers went with the Bruce-Arlene combo because they recognized the value in bringing on investors with strong online marketing experience. Gaining that extra expertise in the deal made was the icing on a $200,000 cake for the HomeSav team - a strategic partnership that could advance the business considerably.
A similar negotiation went into the deal for young entrepreneur Pranav Sood and his business Smart Casing, the early-stage company from Mississauga that struck a deal with Robert despite having a company valuation that was declared "nuts." Husband and wife team Noemie Desrochers and Vincent Purino pitched their Montreal water cooler and purifier supply business and revealed they were expecting to seal a lucrative licensing deal in Paris the next day. This instigated a Dragon bidding war and this time Jim came out on top. Jim knew if the French licensing deal fell through, someone in the U.S. would step in and snatch it up.
But the best negotiating seen in the Den in a long time came from the last entrepreneur, Brad "The Squirrel" Friesen of Vancouver, who sold the Dragons on Last Call, his hangover cure beverage, with an aw-shucks, party-animal shtick that hid some shrewd thinking underneath.
While much of the presentation's emphasis was on girls, booze and Brad's dedication to developing the product while partying late into the night at his neighborhood Yaletown bars, the Dragons recognized the solid foundation of his patented delivery system for the cure - a clever bottle cap he had designed which holds the drink's ingredients and dispenses them when twisted.
Of course, this invention led the Dragons to think about other uses beyond the hangover drink industry. If properly executed, there's potential for substantial revenue down the line, and hopefully, a substantial return on investment as a reward for taking the risk and buying into Brad's dream.
Tony Wanless is Certified Management Consultant (CMC) who concentrates on the SME segment. He is a frequent business plan writer, pitch guide, and business plan judge for competitions. His businesses include Knowpreneur Consultants, a provider of Content Marketing strategy and services to SME's, Reinventionist, an innovation consultancy to professionals who form their own independent businesses. He is currently launching tonywanless.com, which provides communication guidance and real-time digital editing services for leaders in the technology, finance and academic sectors.
Tony is also a columnist and blogger for BC Business Magazine and the Financial Post. A former financial journalist and editor, Mr. Wanless has a long history as a communicator, writer and advisor with Venture Capital and angel investors in Canada. He is a frequent business plan writer and pitch guide for technology start-ups and often acts as a mentor and judge in business plan competitions. Follow Tony on Twitter at @reinventionist
Posted on Mar 22, 2012 6:00:00 AM