Some solid business ideas in the Den this week, but they didn’t all get investment. Paul Ward’s Germwarfare company was already generating good profits, but the Dragons didn’t like the way he had valued it. So how do you value your business when you are looking to attract an investor who will bring more to the party than just cash?
Before I went into the Den I sat down with our projections came up with a valuation of £5m for our company trueCall. I knew that this wouldn’t fly with the Dragons, so I had to think creatively.
My aim was to get Peter Jones to invest, so what would trueCall be worth if it were backed by the most prominent telecoms entrepreneur in the country? My gut feel was that this would add at least 10% to the value of the company – in which case a £100,000 investment by Peter Jones would increase the value of the company by £600,000. Working backwards, £600,000 represented about 11% of the equity of trueCall (post investment), so my aim when I walked into the Den was to get Peter on board for around 11% of the equity.
I initially pitched in at 7.5%, knowing that I was going to have to give way on the valuation, and I was delighted to finally get Peter’s investment of £100,000 for 12.5% of the company – almost bang on target!
Since then we have worked very closely with Peter’s distribution company Data Select, and his web retail company eXpansys to open up new sales channels for trueCall. Peter has said that trueCall is the best gadget he has ever seen on Dragons' Den, and with our new-found credibility, buyers from some of the UK’s largest retailers are taking my calls. We are easily six months ahead of our growth plan, so Peter’s involvement has added significantly more than 10% to the value of the business.
Company valuation is an art not a science, and I don’t pretend to be an expert, but playing with some simple scenarios can lead you to some surprising conclusions. Had I walked into the Den with a company valuation of £5m, I would have been back down those stairs in an instant, but by thinking through all the implications of a potential deal we have significantly increased the value of our company.
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