People should really understand what the Dragons' Den and other similar shows are meant for—the real value they can bring.
For the majority of instances it isn't going to be for getting a fair valuation. And what founder will feel good about that?
It's practically no work for these Dragon investors to listen. Likewise, they see a lot of business ideas that aren't ready for investment, and probably even feels like an inconvenience, which could lead to the Dragons being less than kind and respectful at times.
The reason they usually start at wanting 50% equity is because they want control to make sure the founder doesn't do something they don't want, and basically be able to bully (if it comes to that) their way into what they want happening, or else the founder's company can just be left to die—and what founder would let that happen? Not a good or fair situation to be in, nor even an honourable starting point.
All of the above sounds like shaky grounds for building a relationship on; f you’re not ready for dating, then you’re certainly not ready for a marriage, as investor-founder relations are sometimes regarded as.
In my opinion they should switch to a convertible debt/note model, whereby if the founder doesn't succeed strongly on their own then the investors can potentially get up to 50% (or more). The investors would then be in the situation they normally try to start out in, and will then be able try to rescue the company themselves, and have the equity incentive to do so—though still not the best case scenario, as it would lead to the Dragons having to do more work, so maybe they'd not want to be a Dragon anymore; however it would still be better for the ecosystem/environment that they're trying to foster.
The smart investors out there—and they do exist—get to know a founder and the team to know that they are likely capable of succeeding, usually over years of time, mainly because it's impossible to figure this out solely based on a presentation.
Someone who's good at presenting might not have good business execution skills or be able to guide a vision and pivot when needed, etc.. Likewise, someone who's creative and understands strategy extremely well and has a fast or creative may not be the best at presenting; if I'd rather err on one side, it'd be investing in someone who's not good at time-pressured presentations, but who’s given enough time and resources could execute a vision and navigate their road map (hopefully they have one).
I might go on Dragons' Den one day—though it'll be clear first:
- I won't need investment money at that point, so I can ask what I want;
- It will be through a convertible debt/note, which will align everyone's interests in a fair way, as there is no way they can become an expert in what I am doing nor can I transfer the nuanced understanding I have come to learn;
- I will be ready for the exposure the show will bring, and understand the ROI on the time and resources invested preparing for the show will be the marketing/exposure it creates.
If the goal is to make the show as successful as possible, and attracting better and better prospects—and lead to better entertainment value, be more exciting, while creating a following of excited viewers—then I believe they need to shift to using more fair investment structures.
And guess what? This would lead to the Dragons making more money, and the show making more money. The fact that they don't do this makes me wonder if they're just lazy, don't want to be actually investing their resources and time—so why would you want their money then anyway? Maybe they just don't understand how to create and manage an ecosystem to be successful.
I've not outlined the details of how this would be done here, though I can see how it could work. It will be interesting to see if they start to move towards this model or if the ratings start to die down and if the Dragons don't to lose motivation and interest because of the lack of reward.
They do get exposure and increase their personal brand (not sure how positive it is) but that isn't being amplified to its maximum with relatively little deal flow going through.