Lessons from the Dragons' Den: Of zeal and madness

Written by Rick Spence

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Capital connections

What Dragons want

Here be dragons: 
Jim Treliving
|  Kevin O’Leary
Laurence Lewin

Jennifer Wood
Robert Herjavec

Meet the multimillionaire entrepreneurs who rule the Den — and know a good business when they see one

Kevin O’Leary
Managing partner, North Coast Capital, Boston

Best advice: “Find the path of least resistance, even if it involves compromise. You have to give something up to be successful”

He might be hands-down winner of the Simon Cowell award, or the Dragon most likely to tell you your idea sucks. But investor and entrepreneur Kevin O’Leary maintains high expectations on both sides of a pitch. When the season’s gruelling eight-day taping session finished at noon on August 10, O’Leary didn’t jet off to a Caribbean island, as one of his fellow Dragons did, or scamper back to the Four Seasons Hotel for a nap. Instead, he joined the TV crew in their crowded commissary and started punching away at his laptop. O’Leary had an important presentation to make in Texas the following Tuesday, and he wasn’t going to rest till it was perfect.

The same restless energy pervades everything O’Leary does as a full-time investor or part-time market analyst on Report on Business Television. He’s been free to devote himself to perfecting his investment portfolio since he and a partner pulled off one of the great Canadian business coups of all time: the 1999 sale of their educational-software company to Mattel Inc. for US$3.5 billion.

O’Leary, a former TV sports producer whose credits include Don Cherry’s Grapevine, started Softkey Software in his living room on a $10,000 investment. As a repackager of high-end business software for the consumer market, Softkey succeeded in its mission to become “the Campbell’s Soup of software,” and even topped the PROFIT 100 in 1992. By 1994, Softkey was a billion-dollar consolidator in the edutainment market, buying up rivals such as WordStar, Broderbund and Spinnaker Software. It then moved to Boston and took the name of one of its acquisitions, The Learning Company. Mattel bought in with great enthusiasm at the top of the market, but found itself losing money with 467 software titles. A year later, it basically gave TLC away.

O’Leary has been managing his own investment portfolio ever since, growling about the high fees charged by professional money managers who can’t beat the market, and sharing his iconoclastic investment strategies on TV. From the beginning, though, he has reserved 5% of his portfolio for new ventures that demonstrate the same strategic and marketing moxie that Softkey brought to software.

Although he now lives in Boston and invests mainly in the U.S., O’Leary keeps his eye out for Canadians with good ideas. “I love the entrepreneurship here,” he says. Even so, he learned something new from life in the Dragons’ Den. “There’s a very fine line between entrepreneurial zeal and madness,” says O’Leary. “There were some situations that were really heartbreaking to listen to. There were people who’d put all their family’s money, all their assets, into a concept that in my opinion had no merit.”

When O’Leary invests, he usually takes control positions, so he can push the company in the direction he thinks it should go. Still, he knows that two out of 10 firms he invests in will go belly up, and six will become what he calls the “living dead,” where “the entrepreneur may get a salary out of it, but the business never grows. So, for you as an investor, there’s no way out.” He pins his hopes on the other two companies out of 10, which should make up for the rest by generating returns of 10, 20 or even 100 times.

O’Leary is currently a shareholder in five venture investments. He’s most excited about his involvement in Toronto-based StorageNow, which he believes is revolutionizing the Canadian self-storage industry by providing new, high-quality and climate-controlled storage facilities for economy-minded businesses and demanding, overbought consumers.

When assessing opportunities, O’Leary places emphasis on communication: “If you can’t stand up in front of people and communicate what the deal is and how it works in four minutes, you’re not going to be successful. All the rest — finance, marketing, system integration — is secondary, because you can always hire a systems person or an accountant. But someone has to be able to set the course and communicate the vision.”

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