Episode 7 Dragons' Den

These are the Dragons,

five of Britain's wealthiest and most enterprising business leaders.

Over the next six weeks,

they'll make or break the dreams of dozens of budding entrepreneurs.

I don't know what day you were born on but I wasn't born yesterday.

Do your homework.

No, you're not listening to me, and I buy this product.

It is not a brand new concept.

Sometimes you just lose investment because you screw it up

and you just did.

The multi-millionaire investors have each built up

their fortunes from scratch.

Retail magnate Theo Paphitis,

hotel and health club owner Duncan Bannatyne,

leisure industry expert Deborah Meaden

queen of logistics Hilary Devey

and telecoms giant Peter Jones.

The Dragons have the credentials, the contacts, the commitment

and the cash ready to invest, but only in the right business.

Will any of these hopeful entrepreneurs

walk away with their money?

Welcome back. These are testing times in the economy

but that doesn't deter anyone here in the den.

The Dragons are on their search for the best ideas,

the ones that will succeed whatever the economy is doing.

They are ruthless in that quest.

This has always been a forum for the fearless.

The Dragons are investing their own cash in the den

so don't be surprised if they ask searching questions.

How well will our first entrepreneur answer them?

Hello. My name is Matt King and I am the inventor of WeQ4U.

I'm pitching today for £150,000 investment

in return for a 1% equity stake for my established profitable business.

Sorry to interrupt you.

Did I get it right, you said 150,000 for 1%?

That's right, yes. My company specialises

in helping people get through to busy call centres

without having to wait on hold.

I'm going to show you how we do that with one of our products,

the WeQ4U app, which is available as a free download.

To use it, you just open the app,

enter the number you wish to reach and hit start call.

PHONE RINGS

'Remember, if you get stuck in a queue,

'just press 9 star and we queue for you.'

Now we're being put through to the call centre.

'Thank you for calling. All of our agents are busy at the moment...'

So now we're stuck in a queue. We just press 9 star.

'Thank you for using WeQ4U.'

Now we can end the call. There we go.

Now we're waiting in the queue

but your phone is no longer connected to the call.

We are queuing for you and we'll be reconnected automatically

when the agent answers.

It's a real no-brainer for anybody to use.

The WeQ4U app is not what we sell.

What we sell is the business product

that we sell to call centres

and that's actually the main focus of our business because

it generates substantial ongoing revenue streams for us.

We already have several high street brand name customers.

Last year, we sold over 1 million minutes of WeQ4U business

to UK call centres alone.

Thank you very much for listening to me today.

A highly professional pitch from South Londoner Matt King.

His technology combats the annoyance of lengthy waits on hold

to customer call centres,

but he's looking for an investment of £150,000

in return for just 1% of the business.

Hilary Devey needs more information.

Matt, hi, I'm Hilary.

Tell me about the company to date.

We turned over £300,000 this year. Over 50% of that is profit.

Don't go so fast. You turned over 300K this year.

-What was the profit?

-The profit was £152,000.

Is that net profit or gross profit?

That's gross profit, we paid off all of our loans.

Our net profit this year, I think it's around £40,000.

What you're saying is,

you've valued a company at £15 million

that turned over 300,000 with a net profit of 40,000.

Yes.

How have you arrived at that valuation?

Well, we're looking at the size of the market, really.

According to the Department of Trade and Industry, the UK market...

You can't...!

Are you for real?

A focus on the valuation and not the new technology

is not an ideal start for any entrepreneur.

How will Matt fare under interrogation from Duncan Bannatyne?

Matt, can you explain to me how the Department of Trade and Industry

evaluated the market for people who want to buy an app?

Sure. There was a recent study by the Department of Trade and Industry

that found there were 6,200 call centres in the UK

with 10 or more staff taking or making calls.

66% of those are inbound positions

and the average agent salary is £15,000 a year.

The average reported answer rate at the call centres is 95%.

I don't know what any of that's got to do with my question.

I am answering your question, I'm explaining how I get there.

Today.

If you multiply that, that means the current spending

on answering inbound calls is £13.7 billion a year.

That means the 5% of abandoned calls, by the same logic,

are worth at least £700 million...

This is a complete wind-up. Why are you here?

This is not a wind-up.

Of course it is, you're a sensible guy,

you're not delusional, you're trying to have a bit of fun.

The fun is about to backfire very seriously

and you're about to go up those stairs faster than you came in.

Why on earth would you come in here and try and suggest

that a business that is making diddly squat is worth 15 million

-when you have a technology that isn't proprietary?

-It is.

-No, it's not.

-Can you ask him the question he hasn't answered,

like does the call centre need to have the software on

for the app to work? Yes or no?

This cannot be answered with a yes or no answer.

The app is distinct from the WeQ4U business solution.

If they have the business solution,

nobody needs the app to get through without waiting.

That's the answer.

Matt, you have created something that you are selling into a market

and you're making a bit of profit.

So far, so good.

The trouble is, what you have told me in coming in

and asking for £150,000 for 1%

is that you might be bordering on the arrogant.

OK.

I have to tell you, I can absolutely guarantee

you're going to cite all of those big social networking sites

that started in somebody's garage,

and because of the size of the market, look at it now.

I'm sorry, but at that stage in their early days,

they were not valuing their business at 15 million.

Unless you can tell me in 30 seconds flat why you think it's OK

to come in and ask for 1% for 150,000,

I am absolutely as quick as anything going out.

OK, I'm going to start with that then.

Really, a business is worth what people are prepared to pay for it

and what the vendor's prepared to accept for it.

That's the reality of the situation I'm sure we're all aware of.

That's 10 of your seconds.

I am going to use the Facebook example

because their valuation of 104 billion based on just...

Having told you that I'm not accepting that,

you've got 10 seconds to come up

with something other than the same old, same old.

This is a unique product in the marketplace,

the best product in the marketplace at solving this problem,

which costs call centres a huge amount of money every day.

I have to tell you, this is disappointing.

You are smart, you've got a product that works.

If you'd come in here with a sensible valuation

asking for a sensible sum of money,

I bet you I would have invested in you.

I'm sorry, for all of the reasons I've just talked about, I'm out.

Thank you, Deborah.

A first and early blow for the confident entrepreneur.

There are still four Dragons left.

Will Theo Paphitis be more forgiving?

Matt, what's your background?

I've been programming computers since I was seven years old.

I hold a double first class degree in physics from Keble College, Oxford,

and a lot of the maths from that has gone into the product.

I've worked for IBM and Logica

and spent five years in San Francisco learning how to do Silicon Valley start-ups.

Silicon Valley start-ups?

My view is your whole business plan is flawed.

First of all, any business who has a call centre

that takes so long to answer is disgusting.

The first thing they should be doing

is being encouraged to sort themselves out.

Simple as that. It is so far off humanity's radar...

I don't want to listen to any more of this

because we have the same views on how the call centres are.

I've done this as a disgruntled customer.

-What are you doing to make it better?

-I'm complaining,

and I think everyone should stop using them.

When they lose their customers, they will give proper customer service.

-Well...

-I'm talking. That's what should happen.

I can't invest so I'm out.

A tetchy exchange of opinion

and one that results in the loss of another Dragon.

The bad news for Matt is that it doesn't look like Peter Jones

is ready to let him off the hook either.

Matt, you're an intelligent guy

but do you understand the alienation as a result of what you've done?

I don't think it has anything to do

with the thing you're trying to describe to us.

I think it has a lot to do with the credibility of you

trying to come in here on a wing and a prayer

and suggest that you have a business that is worth 15 million.

To come in with the offer that you've put across today

is bordering on insulting.

That is why I'm going to tell you that I'm out.

OK.

-Matt.

-Yes.

-One of the things call centres are doing now

is trying to encourage emails rather than telephone calls.

Yes, there are some companies that are starting to do that

and in fact some are even closing customer service lines

and saying it is all email now.

People are feeling very disenfranchised by that sort of operation.

The point is if you make a telephone call,

you're sat there listening to the phone ringing,

but if you send an email, you're at your desk,

when email comes in, it comes back in.

Yes, we bring that to phone calls.

I think that will prevent your business

expanding at a rate that it will be worth £15 million in my lifetime.

We're just looking...

For that reason, I'm going to say I'm out.

Thank you very much.

Matt, I'm much younger than Duncan, actually.

I couldn't see a return in my lifetime either.

In fact, I couldn't even see a return in my son's lifetime.

-Would you like me to demo the business version?

-No, I wouldn't.

What happens to the call centres

that say all our operators are busy at the moment,

they've actually clocked your number, one, two, three, four, five,

we will return your call within one hour.

What's wrong with that?

When you're making one of these call-backs,

you're actually taking an agent off taking those inbound calls.

Let's say you've got 10 agents, somebody requests a call-back,

in the next cycle, you've got nine agents...

No, you've not, it's automated.

..and one person making outbound calls.

Your inbound queue is getting longer

because you have fewer agents taking the inbound calls.

-Pretty soon you find...

-Have you ever run a call centre?

Pretty soon you find you're an outbound call centre.

Did anybody ever tell you God gave you two of these and one of those?

-I believe that's the first time.

-I'm telling you now.

Also, please use them wisely.

Would you like me to finish explaining what the problem is?

Not really, no. There are systems out there that will log your number,

log your call and an operator will return.

-The feedback we've had...

-They are automated.

-Not only are they...

-Those that have used...

-Will you shut up?

Matt, I'm out also.

-Thank you for taking the time to

-almost

-listen to me today.

Matt may have defended his business valiantly

but it was the value he placed on it

that seemed to incense the Dragon investors.

He leaves with nothing.

It takes a brave person to pitch to these Dragons

but each year thousands apply to do just that.

TV stuntman Martin Shenton is well versed in the world of risk

as he showed off his scary take on the paintball experience.

Imagine you were watching somebody playing a video game.

Suddenly, you are now playing for real.

ZOMBIE MOANING

GUNSHOTS

Martin was on safe ground explaining his live action game concept.

Blue Green Yellow Dead Live

is a live interactive shooting maze zombie game.

You go in to the game itself, you find three coloured vials

and you get out in the quickest time possible.

The amount of money he wanted proved a step too far.

Martin, I'm going to give you one chance to justify

a quarter of a million pounds.

For starters, for your money,

you'd be getting three games for the first three months.

Sorry, the first game in the three months.

We're going to do 11 games, which will be 12 games in total,

over a five-year period.

What on earth makes you think that what you've got is worth £250,000?

You need a reality check.

The Dragons are used to taking risks too

but not without a solid business plan in place.

If I was pitching to you

with a block of wood and a bloke running round with a zombie hat on

and did a little forward roll

and said, "Martin, I want £250,000 from you for that."

I understand where you're coming from.

There's no way I can get over to you how the game works...

I got the game as soon as you came in, quite liked it actually.

It's not going to be an investment I could see making money

so, Martin, for that reason I'm not going to invest. I'm out.

Often, the question for an entrepreneur entering the den

is not can their business make money

but can it make enough money to sustain a Dragon's investment?

Next up, 25-year-old Umer Ashraf

who thinks he has just the thing with an existing business

he hopes can flourish as a franchise.

My name is Umer Ashraf and I'm from a company called iCafe in Glasgow.

We are quirky yet stylish coffee houses and internet cafes.

Today, I'm here to raise £80,000 to help me launch our fourth unit

which will be our flagship store.

In return, I'd like to offer 30% of the overall business.

Over the last three years, we've won many awards.

In 2011, we increased our turnover to £548,000.

I also started on a franchise package which we're halfway through

so with your help today and my energy, enthusiasm and passion,

I would like to take iCafe to a new level.

Thank you very much for listening to me.

Would anyone like to try some of our products or perhaps a coffee?

-I'd like to try a coffee.

-Sure.

Coffee and cake.

27-year-old Glaswegian Umer Ashraf clearly aims to tempt the Dragons

into investing in his independent cafe chain.

He needs £80,000 to help fund both his flagship store

and franchise plans in return for a 30% stake of the company.

Such a good brownie.

Theo Paphitis is first to question the hospitable businessman.

Umer, it all looks very good. Tell me how it started.

I've always loved business since I was very young.

My parents tell stories,

I was eight years old selling friendship bands in school

and had an online business aged 14 selling mobile phone accessories.

Eventually, an opportunity came up and I was approached by a big company

who were interested in a domain name and they offered me £250.

I was going through my standard grades at the time

wanting to see what university I want to apply to and everything else.

The bottom line is you flogged it.

You don't have to milk this, we can actually get to it.

I ended up selling that for £18,500.

iCafe actually was my final year university project.

I had to come up with a business plan and once I graduated,

I went over to the bank and said, "I would like to open this."

"Have you got a site?" I said, "I do."

-You started when?

-2005, I started.

In 2006, I looked at another unit.

2006 was the second one.

The third unit opened in 2010.

The third one has a coffee-to-go at the front

and a central kitchen at the back. It is actually a support unit.

Umer, It's just a coffee shop, isn't it?

Coffee houses, yeah.

Is there anything special about this coffee shop?

I'm losing the will to live.

I'm sorry, I'm going to ask a few questions,

then you can lose the will to live personally with him.

This year, you're going to turn over what?

£596,000.

Profit will be 70 and I'm wanting to franchise it out

-and that's what I'm here for.

-Thank you. Fantastic.

Verbose or just nervous?

Umer's certainly made an impression in the den

but it looks like Peter Jones is eager to get straight to the point.

You've got three units at the moment.

-Each, let's say, makes about £20,000 a year profit. Is that fair?

-Yes.

Now you want to take that model and turn it into a franchise.

I'm a franchisee now,

what do I have to pay you to open up that coffee bar?

It will cost a total of 109,500.

That's great, so for 110,000,

I get from you a business that can make 20,000 a year.

I don't know what day you were born on but I wasn't born yesterday.

That's not a very attractive offer.

I agree with you absolutely 100% but what I'd like to say

is people wanting to open up a cafe on their own probably make a loss.

You're not getting the point, it's not a good deal.

Umer, I don't know why you're agreeing with Peter

when Peter says the shop only makes 20,000.

You've two shops and your projection this year, 70,000.

-70,000 between two shops is 35,000.

-Three shops.

No, two shops. The third shop is not a shop.

The third shop is a little takeaway and a distribution depot

so you've got to take that out.

The third unit made around 1,600.

Practically nothing.

Do you seriously think anyone would pay you £110,000

to buy one of your franchises?

Two guys have been very interested in doing so

and based on the first year, they would make £35,000.

Not for the first time, the rival investors are divided

about the attractiveness of the proposal on offer.

Can Deborah Meaden make sense of it all?

-Hello, I am Deborah.

-Hi, Deborah.

Who are these people with £100,000 to spare?

OK, one of them is a manager for an electronics...

How much do you think he's earning, because presumably he's got £100,000 in the bank?

We haven't got to that stage.

Do you think he's possibly earning more than, maybe, £30,000 per year?

I wouldn't know that, Deborah, because...

Well, if he IS earning £30,000 per year,

you're offering them the opportunity

to give up their secure job, give YOU £100,000

to put it into a risky franchise for the ability to earn

slightly more than they're earning at the moment.

When I put it to you like that, does that sound like a good proposition?

OK, but parts of that I don't agree with,

because franchisee would be requiring only funds

of around £40,000, the rest is through loan bar as leasing and...

All right. Say £40,000 in the bank.

You've got to think, "Who's this person who's going to take my franchise?"

-I don't know, Deborah, because...

-But you need to!

Because that's your market! You need to imagine that person.

-At the moment, I'm struggling.

-OK.

I feel that I have to defend, really, my position here.

I've worked very hard to standardise all the systems for iCafe.

But our franchise pack is not ready,

-so I can't serve a half-cooked dish.

-Umer.

I truly believe it will go forward but...

The truth is, you've got to think why would people do this?

Who is that person? Where do I find them? What I sense

is that you are quite busy batting off the questions,

but not listening. I won't be investing,

so I'm out.

It's the first blow for the passionate entrepreneur as his franchise model

receives short shrift from Deborah Meaden.

Will Theo Paphitis take a different view?

Umer.

You've come in here with a model

as to whether you run a franchise, whether you're going to open stores,

you haven't come in here with a business plan.

That is why at the moment, you are uninvestable.

-So, I'm out.

-Thank you, Theo.

Umer, you've done incredibly well

to create a business that makes money.

But what you have done is you've stepped out of reality

into a world of complete and utter fiction when it comes to business.

You have no business that can possibly be franchised.

This is totally uninvestable and I'm out.

Thank you, Peter.

-Right, may I speak?

-Absolutely.

And if I do so, will you listen?

-You're the boss, you guys are the boss.

-Right.

To franchise something you've got to have a USP,

you've got to have intellectual property to something

and you've got to have testimonials that what you've got makes money

and is temptation to somebody looking for investment.

-Absolutely.

-But you're not demonstrating that.

Umer, I couldn't work with you.

But that doesn't mean that I don't respect you

for what you have achieved, because I do.

I can't invest, so I got to say, I'm out.

Strong words from the three Dragons.

Now, only Duncan Bannatyne

can save Umer from complete disaster in the den...

OK, now I don't totally agree with Hilary.

I've got a very successful franchise company that doesn't have all the things that she said.

But you said you couldn't sell a franchise

because you couldn't sell a half-cooked dinner.

-But you've got a cooked dinner.

-Yeah.

-You've got two cooked dinners.

-Yeah.

Why don't you try and sell one of your existing coffee shops

-as a franchise?

-Cash flow, Duncan,

because straightaway my cash flow would go from 100 percent,

down to 6 percent.

No, it won't. Because, the day you sell it, you'll open your new shop.

So you could have your new shop lined up and ready to open,

sell the franchise in your existing shop, and then open your new shop.

-With the track record of...

-The one you're selling, you've got track record.

And you would prove to yourself, then, whether or not someone

was willing to pay that money to buy the franchise.

Very good advice. Thank you, Duncan.

Well, you got a business.

-And you got a business making a profit at £49,000.

-Yes.

-Was that before you took wages out?

-No, no, no. After my wages.

After you took your wages out?

I take out £27,500 a year.

I've got to make you an offer.

I think you'd have to promise me that you would talk a lot less.

Yes, I will try my utmost best.

I want 49% of the company.

For £80,000.

It is not negotiable.

Er... Can I take a minute?

I would like to very much accept your offer, Duncan.

-APPLAUSE

-Good luck.

-Thank you very much.

Umer's done it.

We're going to do well. We're going to make a little fortune, you and I.

It only takes one Dragon investor to buy into your dreams,

and he now has an experienced multimillionaire business partner.

Each year, a number of products aimed at children are pitched

to the Dragons, with some notable successes.

Samantha Spake and Vanessa Harris from Cornwall were the latest

to appeal to that market with their wooden toy business.

Our first product is the rocker.

A multifunctional wooden toy based on a Cornish fishing boat.

The rocker can also become a play table with two seats, or a bridge.

Then, on its side, it can become a play kitchen or a grand theatre.

The product's versatility initially met with approval.

They look fantastic. The question, of course,

is how much will you sell it to me for?

£250 for the main pack, £95 for the kitchen accessory pack,

and £49 for the theatre accessory pack.

But the costs raised a number of Dragon eyebrows.

I love the design, I think you've got a problem with the price.

You should perhaps look at moulded recyclable plastic

rather than wood, so I'd go back to the drawing board.

It's a wooden toy company! That's what they do!

Not necessarily.

With all due respect, Theo, Hilary is entitled to her opinion.

In the end, Samantha and Vanessa were unable to escape that high retail price.

You don't need to go back to your drawing board with the design,

but you do with how you're going to sell it. And you've got to cut your margins.

It won't work. You need to come down in price.

I bet you when that's flat-packed,

it does not look 250 quid's worth of product.

I can see why somebody would want to buy it,

but you've got to hit the price point.

I won't be investing. So I'm out.

-Thank you. -Thank you.

So far tonight,

only one entrepreneur has managed to secure the investment of a Dragon.

We're going to do well. We're going to make a little fortune, you and I.

To find out why Umer decided to accept Duncan Bannatyne's offer,

press the red button at the end of the programme.

As a professional toastmaster, Colin Bruton is used to speaking to lots of people,

but the Dragons are a different proposition.

And Colin has certainly got a different proposition for them today.

Hello.

Hello there.

My name's Colin Bruton, and I'm the proud owner of Fellas Products Ltd.

I am here today to ask for £60,000 for 20% of my business.

Fellas is a British male grooming brand.

My launch product was Fellas Wipes.

They are intimate cleansing wipes for men.

They are just a nice way of guys helping to keep their anatomy clean throughout the day.

That's right, gentlemen - they are for your bits and pieces,

but ladies, fear not - there will be no live demonstrations today.

They are individually wrapped, free from alcohol

and all artificial fragrances.

I'm selling via my website around the world,

and I think the investment will be good for any Dragon,

and I'll hopefully give you a return of 750,000 over the next five years.

Thank you very much for your time. Any questions, please?

-Can I have a look at pack, please?

-Of course you can, yes.

If I give you three, and pass them down.

A rather awkward pitch, for a number of reasons,

from Staffordshire-based Colin Bruton.

He needs £60,000 to fund his expansion plans for his male toiletry business.

It's an interesting one for Deborah Meaden.

Hello, Colin. I didn't wake up this morning expecting to be

talking about gentlemen's intimate wipes.

-It's interesting, isn't it?

-Erm, yes. Let's talk about the business model.

What are you turning over at the moment?

I've been trading 11 months, and I've turned over £4,000.

OK, and how much have you lost in that 11 months?

I've put in £30,000 of my own money, and £20,000 of a loan.

-And do have any cash at the moment?

-Yes, I do. About £1,500.

OK, so, is there anything in the product itself that is proprietary?

No, I'm not asking... I'm asking a technical question, now.

-Sure.

-Not what does it look like.

-OK.

I'm asking you, is there something unique about the product itself?

It's my own formula, which is a Chilean soap bark extract.

OK, but is there anything you could protect in that, or is that just a readily...

I can't protect it. The only thing I can protect is the branding,

-which is what I've done throughout the EU.

-OK.

Colin has clearly thought about protecting the product,

but what of the man behind the concept?

Theo Paphitis wants to know.

I'm Theo.

-Who's Colin?

-Who's Colin?

-Yeah.

I left school I was 16.

I joined the Royal Navy, unfortunately it didn't work out for me.

I actually got a medical discharge.

-OK.

-I set up my first company in 1997. I sold that in 2000.

I had an idea for some wipes,

and sold my house and used the money

to invest in Fellas.

Who else is out there competing in this market?

Wingman is one company, but they are a different wipe.

Colin, can I disagree with you? Because I do know the product.

They look very similar. What's their turnover?

I don't know. I don't know that.

But they don't... I don't see them as a competitor.

So, you felt there was enough market for both of you?

-Yes.

-But you don't know how well they're doing,

whether they've found a market, whether they're successful,

or they're not successful, or there's no market at all.

I've gained far too much interest for there not to be market.

-With all due respect, you've turned over £4,000.

-I understand that.

-That's not a lot of interest.

-I know it's not, but I see my biggest market is actually the States.

-OK.

-I'm just about to sign a deal for the...

Two guys in Florida to actually...

Their initial order of 23,000.

The uncomfortable atmosphere shows no sign of abating,

but will the revelation of a sizeable order change all that?

Duncan Bannatyne has something on his mind.

Colin, earlier this year I spent a week living in a tent on a mountain

where there was no showers, and we washed ourselves

-using the same wipes you use on a baby.

-Mmm.

But, you know, I tell you, very difficult to use these

when every time you use them you have to open them individually.

So, I want you to tell me where the customer is who needs

an individually wrapped one of these to use in a specific situation.

I have truck drivers who buy them from me who say they use them when they've been driving.

-So, the truck driver...

-I have...

-Wait a minute, Colin.

-The truck driver is in his truck.

-I have...

-Wait a minute, let me...

He can use, in his truck, some of the big bags.

He doesn't have to have a single one.

-The whole idea is that they are mobile.

-You see, Colin...

-Gentlemen...

-Colin, Colin. Let me tell you something.

Let me tell you something.

When you sell a product,

you have to listen to the customer who's going to buy the product.

-Exactly.

-Now, you're not listening to me, and I buy this product.

Colin, why on earth did you sell your house without

studying the market, studying what market share you could gain?

I don't understand.

You might as well have taken that money and ripped it up.

No, I don't think so at all.

From the really positive conversations I'm having,

I think, you know, I'm pretty sure I'm going to get this order.

I've got, you know, e-mails to prove that the order is going to come through from the States.

I've launched a brand-new brand, and a brand-new concept, so I understand...

It is NOT a brand-new concept.

I were using baby wipes on my son's bits and bobs 25 years ago.

For...

I'm sorry, I disagree. I just disagree.

-Because they are, there are...

-All I can say, Colin, is...

-Yeah, but how do you carry, how does a man...

-Oh, Colin.

..a young man carry a bag of baby wipes around with him?

I've got to say, you look very presentable,

I think your brand is brilliant. Good brand name.

But you clearly have done no research on this market.

I'm out.

Perhaps inevitably, Colin receives a first blow to his investment dreams.

And it doesn't look like his luck is going to change with Peter Jones.

Colin, I think if you manage to get the order,

and you get potential orders after that,

it doesn't necessarily make it a business that is investable.

And I'm wishing and hoping that you don't get that order,

because I think it's going to make you think that you're onto something.

And from Theo's questioning, I'm sitting here thinking

you're probably too late to market,

because your first move or advantage has been taken away from you.

I'm sorry, I disagree.

That's why it makes it a totally uninvestable opportunity.

-And that's why I'm out.

-OK.

You know, sometimes people find it hard to start a business.

But something that is much, much harder is to admit to yourself that you've made a huge mistake.

The product doesn't sell, it won't sell, and only you are preventing yourself

from moving on to do something else, and you've got to really do that.

I'm sorry, but this is not a product that's going to make any money.

So I'm not going to invest. I'm out.

Two more Dragons out, and despite Colin's fervent belief in his product,

he can't seem to get that across to the experienced investors.

Will Deborah Meaden be more understanding?

I would like you to do one thing for me.

I would like you to absolutely promise me that if this order

-does not come through, you will seriously consider stopping this business.

-Yeah, yeah.

I appreciate that. And I do understand.

And I understand that you are saying it for genuine reasons.

-I won't be investing.

-I understand.

-So, I'm out.

Let me just tell you, rule one in starting a business is,

do your homework.

Understand the market.

50 percent of all new start-ups fail incredibly quickly

because people, and I use the word carefully, are delusional.

You need to stop and listen.

You're not investable, this is not something I can invest in,

so I'm going to help you out by saying, I'm out.

OK.

Thank you all for your time. Thank you.

It's a case of tough love for Colin. He got no cash,

but he did receive some genuine words of warning from the Dragons.

He leaves with nothing.

Others who tried and failed in the Den included Joanna and Dean Barnes,

from Surrey, who had an innovative solution to a common DIY problem.

The Daddy is a dust and debris eliminator.

As you can see, all the dust has been forced to the base.

Dean will now demonstrate what happens

when you don't use the product.

You've just ruined a perfectly good suit, Dean!

Before even getting down to business,

the couple's invention caused some disagreement in the den.

It can't work on walls. You're just going to drop straight down.

-You're talking rubbish.

-Dean, tell me if I'm right, Dean.

You can use it on a fixing for a wall. It would work, to a fashion.

The dust would just drop down.

If you sealed it against the wall, it would work.

The den's DIY expert may have backed the product,

but that's not the same as backing the business.

-How many have you sold to retailers?

-We have sold 17,000 units.

Yeah, what would the net profits be?

-£28,000.

-Are these figures before you take salaries?

-Yes.

I think it's a really good product,

but it's just such a small business,

it can't take an investment at the moment,

-so I've got to say, I'm out.

-Thank you.

Next in was darts fan, Barry Steptoe,

who thought he had solved a problem of a very different kind.

The oche is the place a person stands when they're throwing darts,

and I have basically invented the first foldaway, solid, portable oche.

-Can I have one quick go?

-Sure.

No treble top for Peter Jones, but Barry did hit the bull's-eye

when it came to his approach to business.

Barry, how much have you actually invested so far?

-A couple of hundred pounds to get it going.

-Tell me about the patent.

I did that myself.

-DIY job?

-Yeah.

-How much did that cost you?

-£242.

It was complicated, but if you put your mind to it, it can be done.

Well, I have to tell you, I think that's fantastic,

I hope it sends a message,

that we can save millions of pounds on patent lawyers

all around the world. Great!

In the end, Barry charmed the Dragons,

but he couldn't convince them to part with their cash.

I was brought up in a pub, and they used to have the

rubber strips actually nailed into the floor.

To be honest, that was adequate.

Valuing what you've got at half million pounds,

I'd want it to come with the pub that your product is in.

What a great little cottage industry, and good luck to you,

-but I'm not going to invest, and I'm saying, I'm out.

-Thank you.

When approaching investors, it's crucial to offer them

a big enough slice of a business to get them excited,

while at the same time, keeping enough back for yourself.

It's a tricky balance, one that online entrepreneur

Ben Hardyment hopes he's got right as he faces the Dragons.

My name is Ben Hardyment and I'm here today looking for £250,000 worth

of investment in return for a 7.5 percent equity stake in my company.

Zapper is a website where you can enter barcodes

from the backs of books, CDs, DVDs and computer games,

in return for instant cash valuations.

Once you're happy, you would simply complete the trade,

and then we would post you your cheque.

Since our launch in November 2011, we have grown to over 5,000 customers,

and currently enjoy monthly revenues in the region of £150,000.

I've brought here today 58 items,

and the onward retail value of these goods is approximately £250,

but we would pay the customer approximately £40 for them.

And inherent in these is a net profit in the region of £20.

Erm, so I would now invite your questions.

Thank you for listening to my pitch.

A somewhat sober pitch from Ben Hardyment,

whose website offers the chance to sell your unwanted CDs,

books and video games for a share of the profits.

He needs a sizeable

cash injection of a quarter of a million pounds

for a rather precise 7.5 percent of the company.

Duncan Bannatyne is first to question the ambitious entrepreneur.

I want to talk about the business.

I did a quick calculation, £250,000 for a 7.5 percent,

that comes to a valuation of £3,333,333.33p.

-Yeah.

-OK, so what I need to do is find out why.

So, 2012, you worked on a projection.

It was 1.1 million, and the net profit, around 35,000.

In 2013, the turnover is projected at 8.3 million,

net profit, 660,000,

and 2014, 23 million, net profit, 2.1.

Well, you know, if you match these projections,

you could well be worth 3,333,333.33p.

-That's why I've come here with that conviction.

-How do you know you're going to make them?

There's no shortage of inventory in houses,

and the last six months' turnover has been in the region of

£600,000 in total.

A confident rebuttal by Ben to the age-old issue of valuation.

But has it satisfied Deborah Meaden?

-Ben, hi.

-Hi, Deborah.

-How much money have you put in?

-I've properly put in about 50,000 in.

-Do you have other investors?

We have three shareholders at ten percent each.

And how much did they put into the business?

They put in 50,000 in collectively.

So, 17,000 each to give them ten percent?

So, how come these three investors put in £50,000,

and now suddenly we have to buy in at a later stage at £250,000?

Well, the only easy answer is that I'd put myself in a vulnerable

position by not organising the raising of finance in

a timely fashion, so I bought in three minority shareholders,

who I knew would in a mentoring capacity

help me in various different ways.

-OK, are you out of the woods now?

-Most definitely.

The main difference now is that we've ridden that classic cash flow curve.

How much cash have you got in the business now?

We're running an average balance of around £8,000 or £9,000.

You would kind of say there's not a lot of cash in the business at the moment?

-No, that's right.

-So, had you think that answers the question?

The only easy answer...

That has not bridged the gap between their valuation

and this valuation, has it?

The figures that I've given you are,

I will confess, assisted by an injection of investment.

So, I'm having to pay for the difference

that I'm going to make for the business.

I've got to give you £250,000, make a big difference to this business,

to make it worth the money that you're charging me for now.

That doesn't sound like a good way of me spending my money.

Well, if I had an opportunity to show you

the projections of the business...

I'm sorry, this is very frustrating, and I'll be perfectly honest,

I'm actually quite insulted that you clearly think

those other investors are of a different level to here.

Your company was being valued at £160,000.

You now value it at 3.3 million.

I can't possibly invest in something like this, so, I'm out.

Instant rejection from Peter Jones,

as the surefooted businessman loses his first Dragon.

And Hilary Devey is not looking impressed either.

-I think Peter's right, and I equally feel insulted.

-OK.

I'm sorry to hear you say that.

Yeah, so my next words are, "Ben, I'm out."

-Ben, can I tell you where I am?

-Yes, indeed.

I have to say it is not a good strategy to come in front of

five other investors and say,

"We value you so much less than the other investors,

"that for the same percentage, we're going to charge you £250,000."

That is not a good strategy when you're asking for investment.

And sometimes, you just lose investment

because you screw it up, and you just did. I'm out.

Ben, how do you think it's going so far?

Pretty catastrophic.

I quite like the model.

You know, have the three Dragons who've gone out missed something?

I think they've missed the motivation of an entrepreneur who's spent

the last eight years building internet businesses.

Just a little bit of background, briefly.

My previous business was Webflix.

I mean, I started that business in the bedroom of my mum's house.

We sold our customers, at a later date, to our big competitor.

-What was the amount?

-It was 150,000.

That's great. So, if I invest £250,000 in this, what is my exit?

Well, we've had interest from a big American company.

It was a bit early for us,

but there are potential trade sale exits for this business.

I wish you'd come in and asked for less money, Ben.

The valuation's wrong. So therefore, I got to say, I'm sorry, I'm out.

Ben's business revelations restore some credibility to his pitch,

but the result is still the same, and now four Dragons are out.

However, Theo Paphitis has been unusually quiet.

Now, Ben, I like the whole concept of it.

I'm a retailer, I know about retailing.

I see the future in exactly where you're going.

I'm just wondering whether you're just going to run out of steam?

One of the main reasons you can have confidence is that

we've developed the business to scale in extraordinary ways.

And it's all fully tested, robust technology.

Right. So I've got 250,000 quid in my pocket,

what are you going to give me in return?

At least a tenfold return on that investment in three years.

One of the things I can demonstrate to you is that my nearest competitor,

Music Magpie, they've been doing it since 2008,

and now generate something in the region of

100 million a year in revenue.

There's no shortage of people wanting to de-clutter.

But the problem is, you gave 30 percent for £50,000.

And you're asking for such a huge amount here.

I still believe it to be a not unreasonable

valuation at 3.5 million, but I would be prepared to obviously

move on that valuation, and therefore the percentage.

What would you offer me?

I'd offer you 15 percent.

OK.

I'm going to make you an offer...

..of the full £250,000.

But I'm going to be wanting...

..30 percent.

I would be prepared to offer you 20 percent

for that amount, if you would agree.

Believe you me, you don't know how much it hurts to offer you

£250,000 for the same amount as somebody else paid £50,000.

Am I in a position to consult with Matt, my business partner?

Yeah, I think, absolutely.

A tense exchange, but Ben finally gets the offer he badly needs.

But at four times the equity he initially wanted to give away.

Will his business partner be able to negotiate a better deal?

Hello, Matt, I'm Theo.

I just made Ben an offer,

and Ben feels it's important he discusses it with you.

Of course, yeah.

Before I tell you what that offer is, what I'd like to know,

who is Matt?

Oh, well, erm, I worked for British Aerospace for a while,

and then I became a web developer, and then I moved on,

I became a database expert.

I've been working with Ben for six years now.

I set up all the technology, design all the processes,

and make sure everything works together.

Well, let me just say to you, I have asked for 30 percent.

-Do you want to have a discussion about?

-Might be a good idea.

(WHISPERS) Thing is, it's not gone very well, I've been slaughtered.

What do you think we should do? So, we would have 40 percent.

-Less than half, control of the company.

-Yeah.

-That's bad for us.

OK, we'll go to 25, all or nothing. OK, let's go back.

It would involve extra dilution of my own shares,

but would you be prepared to move to 25 percent?

I would be prepared to stay at 30 percent.

We should consider not just the money,

but what Theo could bring in, in terms of his contacts, his networks.

What do you feel?

I feel we should accept the offer.

OK.

-Have we got a deal?

-We've got a deal.

-We've got a deal.

-Ben and Matt have done it.

-Excellent.

The cash injection cost them more equity, but they leave

with a highly experienced Dragon investor on board.

So, Ben and Matt have bagged the biggest investment

ever from a single Dragon.

Of course, it must have been frustrating that Theo Paphitis

wouldn't budge in his negotiations, but they've got their deal,

and they've made a little piece of den history in the process.

To hear more from the entrepreneurs about what it was like

to pitch in the den, press the red button now.

You can also visit our website:

bbc.co.uk/dragonsden

Goodbye.

Next week in the den:

There is somewhere a hidden door to a world you've never seen before.

Business is absolutely simple, people complicate business.

-I don't know why you're laughing at mine, Theo?

-Don't laugh at me!

Oh, my God, they don't look very well. Can you hear me?

I'm trying to think of the pitch, you're standing there with a supermarket buyer,

-saying, "I'm proud of my grandad."

-£240,000?

One of us is barking mad.

It's not me.

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