Due Diligence - What Really Happened After My Dragon's Den

On 8 January 2017, electronics retail magnate, Peter Jones, was seen shaking hands with two budding entrepreneurs on the BBC’s Dragon’s Den. Shortly after, a barrage of tweets was unleashed by the viewership seemingly divided into two fractions, quickly taking sides. I am writing this post shortly after showcasing our smart asset locator system, Xupo, at EIE17, Scotland’s premier investment event connecting 60 high-growth companies and start-ups with investors and customers, to a crowd of start-up enthusiasts, investors and investees alike. Over the past months I was repeatedly asked what happened in “the Den”, or after, for that matter, why the deal on £100,000 in exchange for 30% equity did not come through, it did after all make the headlines in January and we have been very secretive about the whole affair. Let’s back up a bit; in April 2016 my friend of many years and fellow director, Raj Sark, and I presented our smart asset locator tag, Lupo, on Dragons’ Den, a popular entertainment TV program where entrepreneurs pitch their businesses to high net-worth individuals for investment (which may or may not be a secured loan) in exchange for equity in the business. Peter Jones saw the market opportunity in our personal Internet of Things (IoT) device and made an offer to invest in the start-up, Connect-In, which he identified as a software company holding a key patent in a market segment that is now in its early growth phase. After some

negotiation on the equity stake we settled on 30%, where the £100,000 were a secondary factor. It was the distribution network and experienced board member we were after – smart money as it were. Weeks of due diligence followed, during which we got to know each other – meaning we met Mr Jones’s team handling the investment. Due diligence, as we know, gives both parties the chance to assess the situation by sharing insights into each other in a safe environment. In the months following the pitch it emerged that a distribution agreement would not be signed prior to closing the investment. Naturally, considering the company’s 2014 seed round valuation of close to £500,000, it was impossible to enter a down-round at a valuation of £333,333 two years later, during which the brand was established, the product brought to market and THE key patent in a growing $billion industry was granted. Not only out of respect to our current shareholders but also in line with the Company’s funding strategy, we had to decline the offer. At the time, Connect-In’s flagship product was still called Lupo, the trademark to which we did not hold (something not at all uncommon in the start-up scene), though a re-branding exercise in conjunction with a new product launch was already initiated in order to avoid any complications over the "Lupo" the coexistence to which was granted until January 2017. Ultimately, though, it was clear that the investment of £100k would not suffice to scale the business in a fast-pace market where keeping up with technology is key and that the high equity stake could hinder any future venture capital. Whilst the press claimed the investment was “withdrawn”, it was in fact dropped by both parties in June 2016 – you see the difference here. However, later on, when the new product, Xupo, was ready to launch at the official Bluetooth 5 launch in Las Vegas, the understanding was that there was an opportunity to get the offer back on the table and continue the discussion. Then, within minutes of the airing of the show a tweet from @DragonJones that the investment in Lupo had not come through as "issues arose during due diligence” shook the internet. Whether or not the tweet was sent by Mr Jones himself, and whether or not it broke a non-disclosure agreement in place, as some comments on social media suggested, it certainly is interesting how the press played the cards - without pointing fingers, somebody must have issued a press release -, turning a phrase as neutral as “my investment with My Lupo has not come through as some issues arose during due diligence” into “Peter Jones withdraws investment”, leading to an array of speculations. Nonetheless, there is no such thing as bad PR, they say, and considering that some 50% of deals seen on DD do not come through, the outcome shouldn’t be a major surprise. Whilst we would have loved to continue with Mr Jones, aware that an investor of his caliber should come in at no less than 25%, the time and equity to investment ratio simply did not make the business case at this stage. Due diligence, as mundane, as it may sound, can have implications for all parties and remember that it may set in motion events you would not anticipate, so see it as a continuous process, constantly preparing for the next one. Thanks to the spike in exposure we experienced a - for us at that time - astronomical spike in sales and we were joined by an adviser perfectly suited and ideally connected to drive our channel development – and at 5% far more realistic for a company at this stage.