Thursday, October 26, 2006

When will Rick stop writing about Dragons' Den already?

I just read a great critique of the Dragons' Den format by Canadian entrepreneur Austin Hill, co-founder of Montreal-based TotalNet, Zero-Knowledge and a few other things.

Austin (more on him here) has just started blogging at Billions With Zero Knowledge. In a post called Puff the Magic Dragon, Lives on CBC, he questions the wisdom - or sense - of anyone agreeing to a venture investment (either buyer or seller) after as little communication as the Dragons and pitchers have had.

He was particularly skeptical of the deal, mentioned in my previous post, in which the four founders of Jobloft sold half their company to all five Dragons.

"Would you get married and give half your assets to someone you’ve known for five minutes, an hour? Now contemplate this - would you marry into a polygamous marriage with 5 co-wives/co-husbands after an hour-long meeting?"

I think Austin is both right and wrong. Right, because who can argue with more and better communication? And wrong, because this is a TV show, not a binding contract. A lot goes on after the taping of the show to make these deals legal, and it wouldn't be hard for either side to change their mind after doing their due diligence.

As an entrepreneur and an angel investor (at the ripe old age of 33), Austin also proposes a few questions that should be asked before deals such as these get too serious:

* What are the capital requirements of the business as it grows?
* How far the funds are going to take the company?
* Which milestones are the critical ones to get the company to the next risk reduction phase ?
* What kind of shareholder agreement will be required?
* What is the strategy for future financings?
* How large should the employee option pool be?
* What preferred rights if any do the dragons have?
* What will the management team look like as you grow?

Welcome to the blogworld, Austin. I look forward to reading your stuff.

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