It’s a no for the Dragons on spotting a winner
Entrepreneurs backed by TV panellists do worse than random start-ups, researchers find
SINCE 2005, the multi-millionaire panellists of Dragons’ Den have been regarded by many as the epitome of shrewd deal-making. But a new analysis that compares the performance of successful contestants on the show with a random sample of start-ups appears to call into question the Dragons’ business nous.
In fact, the research suggests that entrepreneurs who secure investment from the likes of Deborah Meaden and Peter Jones tend to perform worse than equivalent-sized businesses that raise finance elsewhere.
The research, from the investment platform Syndicate Room, may give future contestants comfort as they pitch their business plans to the Dragons, an experience notorious for reducing budding capitalists to quivering wrecks.
The research looked at the performance of investments made by the Dragons in 2011 and 2012, and compared them with a random sample of more than 500 startup businesses which raised money elsewhere around the same time.
While the value of the businesses favoured by one or more of the judges grew at an average rate of 16 per cent a year until the end of 2018, the average growth of the random group was much more impressive, at 28 per cent a year over the same period.
The rules of the Den oblige the Dragons to use their own money if they want to invest in a contestant’s company.
As well as Meaden and Jones, the panel at the time comprised Duncan Bannatyne, Theo Paphitis and Hilary Devey. Companies they financed during the period included the designer of a handsfree pint-puller and the manufacturer of portable lavatories.
Gonçalo de Vasconcelos, chief executive of Syndicate Room, told
The Sunday Times: “Their return was still pretty good, but it’s below the market average. If you had chosen a random selection from this cohort, then you would have done better than the Dragons.” Hosted by Evan Davies, the show boasts a number of high-profile successes, such as Levi Roots, the founder of Raggae Reggae Sauce, who is now a millionaire having persuaded Peter Jones to invest £50,000 in his business in 2007.
However, the judges have also faced criticism for failing to spot the potential of a number of businesses that went on to enjoy huge success with alternative funding.
These include the companies behind Trunki rideable suitcases for children and the Tangle Teezer hairbrush design. Shaun Pulfrey, who pitched the Tangle Teezer to the Dragons in 2007, was told by Bannatyne, who owns a chain of health clubs, that he would never make any money from it. However, the products made sales of £21.4million in 2017 and have been warmly endorsed by Victoria Beckham and Cara Delevingne. Meanwhile Rob Law, who invented the Trunki suitcase, received short shrift from Paphitis, who pulled the handle off one of the cases. The products are now stocked by more than 2,500 retailers, with sales of more than £9million last year. As part of the Christmas special Sophie Awdry and Noemi Lamanna pitched their startup, Eco Glitter Fun, which sells biodegradable glitter. Their pitch was due to appear on the December episode but their segment never aired. Ms Awdry told The Times: “A couple of them didn’t get it at all and thought we were just a couple of silly girls selling glitter.”
Despite being snubbed by the Dragons, Eco Glitter has since become a big success and is now stocked in more than 100 shops worldwide.
The new research was based on data from Beauhurst, which specialises in analysing private companies. It follows research published in The Sunday Telegraph in 2015 which found that approximately half of investments made on the show fall through.
The study was conducted by a previously unsuccessful applicant to appear on the show, Tiger Mobiles, which found that of the £13million pledged between series one and 11, only £5.8million was ever invested. Deborah Meaden defended the show’s record at the time, pointing out that the exposure afforded by appearing in the Den meant contestants often receive alternative offers and then turn down the original investment promised by the Dragons.
One such example was Amer Hasan, who entered the Den in 2013 pitching for investment in a price comparison website for booking taxis called Minicabit.
He accepted £75,000 from Meaden and Jones in return for 35 per cent of his firm, but the agreement collapsed after Hasan was made a better offer. He later said: “The subsequent funding round... gave us a lot more money in return for a lot less equity.” Responding to the new research, a spokesman for the BBC said it was “misleading” to judge the performance of Dragons’ Den based on investments pledged over just one year.
“It doesn’t accurately reflect the guidance and advice small businesses receive from the Dragons,” he added.