Duncan Bannatyne is nothing if not his own man when it comes to judging pitches on Dragons' Den - but it seems to me that his personal portfolio of unreasonable objections to business propositions grows with every passing episode. Last night's instalment featured a doozy.
Harrison Woods - perhaps the most bright-eyed and bushy-tailed investment-seeker in Den history - pitched an online tool that allows individuals and businesses to rent out privately-owned parking spaces when they are not in use. Bannatyne based his objection around the fact that the apartment block in Covent Garden, where he owns one of fifty residences, has only three parking spaces.
The implication seemed to be that the supply of spaces is not sufficient to make the business viable - and Bannatyne declared himself out before Woods could remind him that the UK is a very big place where not everywhere is as built-up as London's West End.
Personally, I warmed to the company immediately because it presented a cost-saving opportunity for businesses - and anyone who knows my background or reads my blog regularly will know that this is an area that piques my interest. If you own a parking space - as a business or an individual - you can use Primal Parking to claw back some (or all) of the cost associated with it. If there's no cost, the revenue you generate goes straight into profit. On the flip side, you can use the service to save up to 75% on the price you might otherwise pay for parking your vehicle.
Theo Paphitis and Peter Jones overlooked some of the company's teething problems - including the fact that it had no obvious edge over established competition and the website and smartphone application were not yet live - and backed Woods primarily because they were sold by his personal qualities. He demonstrated tenacity and affability in abundance - and also impressed by having the courage (or 'cajones', as Paphitis put it) to pitch to the Dragons at just 22 years old.
For me, the most interesting aspect of the proposal - and the factor that I believe clinched the deal - was the fact that Woods had already given away 20% of his company to a web developer in exchange for the online technology that allows customers to use the service.
It might seem counter-intuitive to sacrifice such a large slice of the pie when you're starting up. However, Woods evidently accepted the reality that no website or smartphone app means no business - and his decision struck me as an astute one for two reasons. Firstly, spending no money is great when you haven't generated any yet - and giving away equity instead of cash eliminates the possibility of costs spiralling out of control and giving the business a mountain to climb before it shows a profit. Secondly, having a stake in the company motivates the developer to deliver the product quickly and to a high standard, removing the unwelcome prospect of any dispute about ambiguous specifications, delivery agreements and so forth.
Woods' decision brings to mind graffiti artist David Choe's famous choice to take stock in Facebook rather than a cash payment in exchange for an office mural in the social network's early days. This arrangement worked out very well for both parties: it helped Mark Zuckerberg to establish his company's identity - and Choe's stock is now reported to be worth more than $200 million.
I'd be interested to know what you think of "sweat equity" - and whether or not you have experienced or would consider giving away shares for anything other than cash investment. Let me know by posting a comment at the end of this blog. For Harrison Woods, it's a strategy that seems to be paying off: the Primal Parking website is now live, working well and looking good. It can expect a spike in traffic this week - and Woods should be on his way to the success that Peter Jones and Theo Paphitis anticipate.
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