Our investor is a nightmare. Help!

Dear Aunty B,

I am an entrepreneur who has hit some rough times here in New Zealand due to a number of factors which I won’t go into here.

We have one key investor who has made a substantial amount of money through selling his own business but still operates a part of it at the moment. He did take a shine to our ideas and motivation and did invest in our business (through off and on balance sheet means).

However, his decision-making processes seem particularly “ill fitting” and for the most part have failed us quite badly. In hindsight we think we should not have gone with him in the first place.

However we do feel that his intentions are honourable but his financial judgments somehow impaired (at least from our perspective).

What we have found is that he is very reluctant to fund any working capital for our projects, which we have repeatedly explained would mean that we would have no money set aside for operational, living or marketing expenses.

As an example he will fund a major capital item, the inevitable happens and we are unable to utilise the item to generate revenue and his answer is that: “he doesn’t want to make it too easy for us”.

Next we find that when we desperately need a cash injection to either do a demonstration, sales trip or move along to the next step of a project he disappears for weeks and weeks without contact, which on three occasions has led to us almost folding.

In fact the effects of these occasions have usually been so bad he has bailed us out from actually folding. The terrible thing is that he doesn’t realise his impact on us, his response is usually: “Shit happens”.

Recently he promising to fund 50k worth of development of a radical new innovation in a new product but he once again disappeared and after a minimal investment of 6k delayed discussions into providing any working or investment capital for continued development of the product. With the result that we had to stall further progress and find contracting work to simply support ourselves and our survival needs, ie. housing and food.

Three months were effectively wasted on our research program as he dodged any further funding into the project. This backtracking meant that we were unable to meet debt repayments again and were forced again to call for his help to fund us out of impending legal action.

The irony here is that all of the bailouts have amounted to the working capital that we required in the first instance but having spread themselves over two years have done nothing to get our business off the ground. I mean the amount is only $20,000 but it would have been great to get that as working capital upfront so that we had a decent budget to begin marketing and to cover our living expense over the first three to four months as we built market awareness and the first lot of revenues.

He is not our only investor and we have raised large sums through loans and other people, and have acquired commercial assets to get our operation started. We have been loathe to part with these assets as this is part of our core infrastructure, but as we have not been able to utilise this infrastructure to build revenues. We have been thinking that we should sell some of it to fund our working capital needs to build up our contracting/consulting side of things at least. Then we would have some working capital to do something productive and not wait for Mr Flaky to bail us out again.

So on this latest occasion, after offering to fund development of our innovation and three months into the development process he disappears for a month, we find ourselves with no money to live and to pay bills and we find that he reneges on his offer to fund the project citing his own money issues, six weeks later as we grapple with switching our business model from R&D to consulting we hit another cashflow hump and he bails us out again as we tell him of our dire situation.

The problem is that now he wants to have a lien on some of our other assets which co-incidentally we said we want to sell to fund our working capital needs so that we can actually utilise the value that is locked away in them, rather than have it depreciate away doing nothing.

Having a lien against our assets means that we are unable to sell the asset, compounding our lack of working capital to get anything off the ground. And we certainly don’t want to get into more debt by having Mr Flaky continually bail us out.

Of course, we wouldn’t have problems if we could get any decent paying jobs here in New Zealand but they don’t exist (at least south of Auckland) so our only alternative is consulting work but this requires a minimal, but still for us reasonable, investment into ourselves.

Am I going insane here? Having to rely on an investor as unreliable as Mr Flaky?

We would really appreciate an objective POV/

Regards, Mark

Dear Mark,

Look, you are not getting a sympathetic ear on this one. Both you and he have a very unprofessional arrangement that is completely unsustainable.

At the start you should have set up a formal agreement, secured a large sum upfront and with a clear agreement that he inject more capital when certain milestones by you are met.

When you are taking other people’s money for your investment, they have a right to know that the money is going into a company that has a proper plan and is being run in a professional way so they will get a return on their investment.

To run a business based on approaching an investor when the money runs out is a ridiculous arrangement. Yes, your investor sounds like a nightmare but so do you.

You need to stop and sit down and do a proper plan. I think you will need help with this from an accountant or adviser. You need to look carefully at your financial position and how much you owe.

You also need to set up a consulting business that then becomes your cash cow. Most companies who are focused on R&D have a cash cow component.

It secures the business and stops you running up debt.

What you have to do is stop running, sit down and map out the big picture. You also have to be careful that Mr Flaky is not after your business. You say he is an experienced investor but experienced investors don’t operate this way.

Often the Mr Flaky’s of the world end up driving a company under and then picking up the IP and assets very cheaply from the receiver so watch out for that ploy.

As to your last point: you are not insane having to reply on an investor as unreliable as Mr Flaky. You are just inexperienced. Get help!

Good luck,
Your Aunty B

To read more Aunty B advice, click here.

Email your questions, problems and issues to auntyb@smartcompany.com.au right now!

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