Pitching your ideas - lessons from Dragon's Den

Dragon's Den has brought the world of business angel investment into our living rooms, and provided a fair bit of entertainment along the way. It's also a good source of guidance for anyone looking to pitch to a potential investor, such as:

• Know your numbers: you're going to get asked questions like "what's your sales to date?" and "what profit will you make in year 3?" so make sure you're prepared. Also make sure that you understand what the difference is between gross profit, operating profit and profit before and after tax. Doug Richard and Peter Jones , amongst others, have tended to switch off as soon as the businesses look as though their floundering in this area.
• Look professional: Peter Jones has consistently criticised those who have turned up looking unprofessional. He likes to see a suit and tie - remember first impressions do count.
• Pay HMRC on time: one individual noted that he hadn't paid his VAT for quite some time. Duncan Bannatyne gave some good advice: "Two people you always pay - your doctor and the taxman." The Taxman has the power to shut you down, and then you have no business.
• Explore your alternative funding options: equity funding is expensive; make sure that you have talked to your bank to establish what debt options may be available before you talk to providers of equity.
• Don't lie: many opportunities have been turned down, or deals failed, because of inconsistencies - Duncan Bannatyne says: "We don't hand over money to people who don't tell the truth.", while Theo Paphitis adds: "I kept up my end of the bargain. The show is not about a cash prize, it is about us pledging to invest. But people must tell the truth. Simple." .
• Get the valuation in the realms of reality: there's no right answer to valuation, but there are a load of wrong ones. There have been lots of examples of businesses looking to raise £150,000 and offering 5% (thereby valuing the business post investment at £3 million) where the company is pre-revenue, or early stage.
• Don't lecture your potential investor: Theo Paphitis has often lost interest in a deal because instead of the answer to his question, he's received a lecture in business theory.
• Know who you're talking to: understand what benefits the dragon can bring to your business (and if you're not certain, ask). A few examples spring to mind - forgetting that Duncan Bannatyne, by being a gym owner, is also a major licensee; Theo Paphitis has a track record in retail and has contacts throughout the sector; Deborah Meaden has considerable experience in export and fashion

We look forward to your pitches!

Why business plans go in the bin

As you might expect, we get a lot of business plans. Some are outright rubbish, and their authors ought to be ashamed; others have the vestige of a good idea, and their path to either the bin or the desk depends on how busy we are.

The idea is simple - make sure your business plan is the one on the desk, not one of the 50 in the bin. How? Here are a few common mistakes:

• The plan doesn't tell a complete story: there's lots of good guidance out there, so not doing your research is unforgivable. You might want to have a look at the Business Link website, for example, for help with the contents of a plan
• It's your plan, not your accountants: this is your business, therefore your plan, and the excuse that "my accountant did that bit" is never good enough.
• Financial forecasts are wrong: one of the purposes of the business plan is as a tool to assist in raising money, so we can't emphasise enough how important it is that the numbers actually make sense. If this is an area of weakness, get some professional help and get it right.
• Financial forecasts are unrealistic: getting a business off the ground is enormously difficult. You need to be realistic about your prospects for growth, otherwise your credibility will be shot.
• Valuations are unrealistic: think rationally about what you want to achieve. If raising equity might make the difference between success and failure, do you really want to scare off an investor by being ridiculously greedy? It's better to have 20% of a wedding cake, than 90% of a jaffa cake. A couple of thoughts... if you want to raise £100,000 and are offering only 10% of the equity, this means that after investment your company is nominally worth £1 million. Can you justify this valuation? If an angel wants to exit with a tenfold return in three years, can you realistically see the business being worth £10m in that time frame?
• There's always competition: we see plans which talk about a new product for which there is no competitor. An extreme example might be someone who has invested a laser for opening tin cans. True, there are no other lasers on the market, but the reason is that the manual can opener does the job just fine thank you.
• Run the spell checker: this might seem trite, but your business plan is potentially the only opportunity that you will have to impress an angel. As well as giving insight into your business idea, it also is an indication of your professionalism and competence, so don't let the simple things let you down.

We'll update this article whenever we see things which let a plan down. In the meantime, happy writing.