The season seven finale of Dragons’ Den on CBC gave viewers a glimpse into the personal lives of the dragons and what making it as an entrepreneur can look like. For Anatomy of a Deal’s end-of-season wrap-up, Mary Teresa Bitti caught up with Kevin O’Leary, who is both a dragon and a shark on ABC’s Shark Tank, the Den’s U.S. counterpart. She asked Mr. O’Leary about his experience on both shows and how the pitches compare. As a dragon Mr. O’Leary made 16 on-air deals this season and he made 15 on Shark Tank, which is in the midst of its fourth season. The following is an edited version of that conversation.
Q Seven seasons in on Dragons’ Den, how have the deals evolved?
A Most entrepreneurs fall into two categories: those with ideas that haven’t been funded and are looking for seed capital and companies or teams or products that are already in the market that have figured out that Dragons’ Den is a launch platform for accelerating sales. For the past couple of seasons we have seen a tremendous amount of opportunities that are mature companies in their third and fourth years across a wide range of consumer goods and products and services. I think the Canadian entrepreneur has figured out what you can. The show is like an infomercial on steroids. That’s what’s made it more interesting for us as investors because instead of just taking the high-risk road of startups — which we still do because it’s exciting — you can get a really stable cash flow from helping a company accelerate its sales from $1-million a year to $5-million.
Q What does that mean in terms of the due diligence process?
A The closing process is long and arduous because when you are dealing with a real company with real sales, structuring the deal gets complicated. That’s what’s happening. It’s not just about throwing in $50,000 and getting some common shares. You might say, I’ll give you $250,000 of which $200,000 is equity and $50,000 is the beginning of a bank line. That’s more of what I’m doing. Two deals I closed last week were three months in the making and both involved equity and credit lines.
Q What stage are the pitches at coming to you via Shark Tank?
A We have a lot of product specific ideas, not necessarily companies. One of the reasons that happened is the close alignment the show has evolved into with QVC and other home shopping channels. It’s well orchestrated and choreographed so that products featured on the show are available on these shopping channels immediately after the episode airs. Shark Tank is also using social media and live tweeting during the show with the Sharks describing what is happening on the New York feed at 9 p.m. so that by the time it airs in Chicago, the show is already trending on Twitter.
Q Is there a difference in the quality of pitches you’re seeing from Canadian and U.S. entrepreneurs?
A One is not better than the other — the platform is different. In the U.S. the producers spend a tremendous amount of time digging into the backgrounds of the people presenting, so as a shark I get a pre-pack of where they came from, history, what school they went to. I know more about them as individuals. I’m not saying that’s good or bad. On Dragons’ Den, we focus more on what happens in the Den and the deals. The other difference is in Canada we essentially have three sectors: financial services, commodities and energy, and much of what we see on Dragons’ Den fit into one of those three in some way. In the U.S., there are 10 sectors: biotech, medical services, pharmaceutical — so you get more diversity. But that’s just the nature of our economies. The opportunity for the investor is equal between both markets. There is no lack of good ideas coming out of Canada and many of the Dragons’ Den deals — I would say two-thirds of them — are looking for leverage and capital to enter the U.S. market and extend their brand. That makes it even more interesting when you want to accelerate a company that has only sold its products in Canada.
Q What’s your biggest deal so far?
A I think it’s Talbott Teas from Shark Tank. It’s certainly the only one where a public company bought it. Oprah had included the teas in one of her favourite-things episodes, which got the entrepreneurs some huge orders and they needed money to fill them. I bought 35% of the company for $250,000 and within 90 days it was acquired by Jamba Juice. That is my highest ROI to date because it was an investment for only 90 days. In Canada, my most successful deal in terms of a brand build is Dig It gloves. In most cases, you have to be in these deals for years. Those gloves are everywhere now. That’s not to say every deal works. You will have failures. I put $100,000 into a company called Toygaroo with Mark Cuban. It went to zero because of bad management. Mark and I had to decide do we write it off or get new management? We wrote it off.