Thursday, 22 September 2016

Dragon's Den -- how do they assess a business?


Dragon's Den is a popular TV program where ordinary people pitch their business ideas to savvy investors. PhD by training and an entrepreneur by interest, I share key metrics that Dragons seem to use to assess a business.

  1. Proposed valuation by a pitcher = asking price / proposed equity 
  2. Assessed valuation by a dragon = profit x 4
  3. Profit = revenue - cost (including salary)
  4. Cost = cost of building the product or rendering the service
  5. Sales = measured in the number of unit product sold and/or dollar value generated
  6. Revenue Forecast = Dragon want to know the expected revenue of the current year and the next.
  7. Investment = amount of money invested in the business by the pitcher.
  8. Scalable = Dragon evaluate the scalability of a product/service.
  9. Life = existence of a company in months/years. Anything over three years with no growing profits is generally viewed negatively. Often an indication of poor acceptance in the market.
  10. History = Dragons look at the performance of the company for last quarter and year.
  11. Debt = Any significant debt without profits is viewed very negatively.

I invite readers to extend and critique this list for the benefit of others.