By Able Lim
If a friend or family member is starting a venture and asks you to invest, sift out the personal feelings and approach it as a business decision. Make sure the paperwork is in order and don’t rely on verbal promises. Mei, 41, marketing consultant shares her story an investment that went sour because she went with her feelings ,and not her business acumen.
My fellow Singaporean friend and I were approached by two ladies to invest in their seven-month old Japanese-French patisserie in Shanghai last year. The patisserie was owned, operated and managed by an Australian Singapore-Chinese lady named J, and her Taiwan-Chinese partner, who was also the pastry chef.
As they are both from well-to-do families, andJ is the daughter of a friend, we felt ready to invest as they seemed to have a good business plan. The two ladies were passionate and eager to strike out on their own in a foreign country, and most importantly, their desserts literally melt in your mouth.
So we agreed verbally to invest over S$120,000 for a stake in the business. A month went by and there was no update on the delivery of the promised legal shareholder’s contract. When we asked to see the latest profit and loss statement, the two ladies said they were swamped as it was the peak season and they asked for more time. We backed off as we had complete trust in our friend’s daughter, and didn’t want to stress her out.
I went to visit the patisserie couple of time when I was in Shanghai, so did my many local and expat friends in Shanghai. The business seemed to be good, especially on the weekends, and appeared to be stable overall.
Seven months after our initial investment, we got to know from J’s auntie during a casual phone conversation that she planned to open a second outlet in Shanghai. We were about to call J to get more details about the good news, when J updated us with a profit and loss statement showing losses for the past seven months. She said we need to inject more funds into the business if we want to keep it going. She warned that the patisserie would be forced to shut if there weren’t new funds of S$60,000.
We smelled a rat as that seemed very different from what we heard, and the financial statements didn’t reflect what she said as they seemed to be continuing to employ more staff and buying more raw materials. J also denied any plans to open a second outlet. We suggested to cut the losses by closing the business and selling off the equipment.
I tried to help by finding buyers for the equipment, but the two ladies refused to shut the business or sell the equipment. They revealed they had managed to keep the business going with fresh funds from a personal loan.
Four months later, when I was in Shanghai for some business meetings, I went to the patisserie. To my bitter surprise, it was closed. The equipment were all gone. The landlord told me that they had vacated the premises with the equipment in the wee hours, without giving any notice or terminating the lease.
My partner called J, without telling her we were standing outside the shop, and asked how the business was doing. She proudly replied: “We may move out of the current space to convert the retail model into a business-to-business operation”. This was when we revealed to her that we understood the retail space had been shut without informing us, the partners. She became defensive and said, “To be fair, you both didn’t want to inject any further investments, so it has nothing to do with you even if the business closes!” She continued, “In fact, you both should be thankful we didn’t ask you to pay the money we owed suppliers.”
Months later, we learnt they are operating a B2B business under a different business registration and brand. My partner and I sought legal advice and were told we do have a case against the them. However, we decided not to pursue any legal action as we rather channel our energies into more constructive things.
As an investor I am aware that every investment has its fair share of gains and losses. I am disappointed by what happened, but I won’t be discouraged by this incident. I will continue to look for investment opportunities. But this time, I will be smarter and have the legal side of things covered, and leave my emotions out of the equation.