On Wednesday nights, Kevin O’Leary, the Simon Cowell of the business world, is either handing out cash or crushing someone’s dreams. He’s one of a panel of investors on CBC’s Dragon’s Den, the Idol for entrepreneurs.
When Frogbox, a Toronto moving box company, threw itself a party to watch an episode its founders appeared on, it was safe to assume “party” meant it would be a Dragons’ Den success story.
It was.
Frogbox, an eco-friendly alternative to what founder Doug Burgoyne estimates to be the $5 billion North American cardboard moving box industry, slayed the Dragons.
But it wasn’t as easy as walking into the studio and pitching an idea. Here’s how it worked.
In early 2010 Burgoyne had been contacted by CBC producers in Vancouver and invited to send in a video pitch of their business.
Two weeks later Burgoyne was on a plane to Toronto, where Dragons’ Den was already in the processes of filming their fifth season.
Burgoyne and Harbut stood outside of the Dragons’ Den studio, along with 11 other businesses ranging from electronic bicycles to eco friendly dildos waiting to hear the order they would face the dragons in.
Frogbox was third.
Burgoyne entered the set first. “I’m here today to ask for $200,000 in exchange for an 18% stake in our company,” he said, casting the bait. The episode revealed all five dragons wanted a bite even the infamously cantankerous O’Leary, despite his comment, ” I like the environment but if it costs me one extra cent, forget it,” referring to Frogbox’s competition, the cardboard box.
After about 20 minutes of negotiation, Burgoyne and Halbut walked away with a $200,000 investment with a 25% stake of the company split between Brett Wilson, Jim Treliving and Arlene Dickinson (Dickinson has since dropped out of the deal).
“We went in thinking it’d be promotion at least and it’d lead to an investment at best,” says Harbut.
It’s been both. Investor Dragon Wilson has publicly shared his enthusiasm as an investor in a YouTube video gushing, “I believe (Frogbox) is franchisable, scalable and very lucrative.”
But Frogbox, who already had investors and a relatively established company, made it look easy. Dave Valliere, Chair of Entrepreneurship and Strategies Department at Ted Rogers School of Business Management assures the real life investment process is not as simple as the Dragons make it look.
“It’s great TV,” he says, “but it’s not an entirely accurate representation of what the real world of investing looks like.”
According to Valliere, out of ten of these companies, two will die, seven will never actually amount to anything and one will make it big enough to pay off the investor for the nine that didn’t. There’s still no guarantee which Frogbox will be.
Few professional institutional investors will touch these companies.
The Dragons, with their high net worth, also known in the investment world as “angels,” have play money they’re willing to throw around to businesses in return for a healthy chunk of the company.
But the reality is that if you’re not willing to shake on a deal, and the initial “love money” from family or friends has run out, be prepared to go the slow and organic way that Valliere refers to as “bootstrapping it” by keeping complete ownership of your company and only using money you earn to grow.
Frogbox is set to begin franchising throughout Canada and the US this year.”We’re definitely very thankful,” Harbut says, “Dragons’ Den has six million viewers and our biggest goal is to have six million people know about us. That opportunity doesn’t come around everyday.”
Dragon’s Den is auditioning for contestants Saturday, Feb 12.
