Investment Awkwardness!
March 1, 2011 1:40 PM Subscribe
Wanting clarity with investment proposal!
There are a couple of parts to this and it may be disjointed. May it not come across too much as "Dear Abby"
I have the opportunity to invest in a hot springs (where the opportunity came from is another story)
Here
I have asked friends to help spell out the numbers for me.
I am a hot springs devotee. I love them and think they benefit everyone. If I had my way I would give friends weekend vacations to my favorite places 1 x a year.
Based on experience and research I know how I would like to see a business being run
1) How much say do investors have in their investment? I've met the principals and generally like them. I am a yoga teacher and have been involved in many businesses. These businesses that had spiritual bases successful or not were pretty drama-driven and attracted a lot of head-cases. This presentation is seductive as it is meant to be. The titles that the individuals have don't mean much to me. I just want to see some heart, soul and a connection to the urban world also.
I was also raised on a farm. The day to day work and taking care of what needs to be taken care of is what matters. So does being supported in this work. I am wary of those who do this as a spiritual practice, romanticize this aspect of it and want to start a community because of the shared belief. Please don't make it more than it is.
Take away the personal ideologies and farming essentially is a socially responsible investment and a community.
2) I am guessing that the choice is mine as to how I want to be involved in this. I can just invest, sign the appropriate contracts, receive the benefits of part-ownership and take the yields as they come.
3) Can I have someone represent me in this process? A lawyer? Consultant? Can I negotiate? I find myself in rarefied air here. I am comfortable with risk. I am more concerned with my not knowing enough in this stage of the game to be aware of what is happening or if I am being pushed around. The CEO has sent me the proposal and said to call him after I've gone through it. I have no clue what to say or what to ask. The questions I do want to ask seem very sophomoric. Can I make demands or ask questions about management teams and systems. Or again is it just, "This is what we need. This is what we are offering in return. Take it or leave it."
There are a couple of parts to this and it may be disjointed. May it not come across too much as "Dear Abby"
I have the opportunity to invest in a hot springs (where the opportunity came from is another story)
Here
I have asked friends to help spell out the numbers for me.
I am a hot springs devotee. I love them and think they benefit everyone. If I had my way I would give friends weekend vacations to my favorite places 1 x a year.
Based on experience and research I know how I would like to see a business being run
1) How much say do investors have in their investment? I've met the principals and generally like them. I am a yoga teacher and have been involved in many businesses. These businesses that had spiritual bases successful or not were pretty drama-driven and attracted a lot of head-cases. This presentation is seductive as it is meant to be. The titles that the individuals have don't mean much to me. I just want to see some heart, soul and a connection to the urban world also.
I was also raised on a farm. The day to day work and taking care of what needs to be taken care of is what matters. So does being supported in this work. I am wary of those who do this as a spiritual practice, romanticize this aspect of it and want to start a community because of the shared belief. Please don't make it more than it is.
Take away the personal ideologies and farming essentially is a socially responsible investment and a community.
2) I am guessing that the choice is mine as to how I want to be involved in this. I can just invest, sign the appropriate contracts, receive the benefits of part-ownership and take the yields as they come.
3) Can I have someone represent me in this process? A lawyer? Consultant? Can I negotiate? I find myself in rarefied air here. I am comfortable with risk. I am more concerned with my not knowing enough in this stage of the game to be aware of what is happening or if I am being pushed around. The CEO has sent me the proposal and said to call him after I've gone through it. I have no clue what to say or what to ask. The questions I do want to ask seem very sophomoric. Can I make demands or ask questions about management teams and systems. Or again is it just, "This is what we need. This is what we are offering in return. Take it or leave it."
Sorry, I also meant to say that you can and should ask anything you want, from basic questions to sophisticated ones. You are required to do so by your due dilligence obligation.
posted by DarlingBri at 1:52 PM on March 1, 2011
posted by DarlingBri at 1:52 PM on March 1, 2011
Best answer: Can I have someone represent me in this process? A lawyer?
Don't sign anything or give them any money unless you go over it with an attorney at the minimum. You will not be able to figure out the legal and financial ramifications of this deal by yourself because you are not an expert and the people offering the deal are not in a position to give you unbiased information about it.
I am guessing that the choice is mine as to how I want to be involved in this. I can just invest, sign the appropriate contracts, receive the benefits of part-ownership and take the yields as they come.
According to their documents, this place isn't even built yet. So keep in mind that this whole plan could fail and you could lose your entire investment before it ever makes any money for anyone. Most new businesses fail in general. If you could really get a guaranteed no-risk 15%+ return on an investment than everyone would be doing it already and they wouldn't need to setup a website to convince people to give them money. Also the general rule about co-owning a business is that if you aren't going to be on-site running things, you are not going to have enough oversight to really make sure your investment is being handled properly.
posted by burnmp3s at 2:18 PM on March 1, 2011 [1 favorite]
Don't sign anything or give them any money unless you go over it with an attorney at the minimum. You will not be able to figure out the legal and financial ramifications of this deal by yourself because you are not an expert and the people offering the deal are not in a position to give you unbiased information about it.
I am guessing that the choice is mine as to how I want to be involved in this. I can just invest, sign the appropriate contracts, receive the benefits of part-ownership and take the yields as they come.
According to their documents, this place isn't even built yet. So keep in mind that this whole plan could fail and you could lose your entire investment before it ever makes any money for anyone. Most new businesses fail in general. If you could really get a guaranteed no-risk 15%+ return on an investment than everyone would be doing it already and they wouldn't need to setup a website to convince people to give them money. Also the general rule about co-owning a business is that if you aren't going to be on-site running things, you are not going to have enough oversight to really make sure your investment is being handled properly.
posted by burnmp3s at 2:18 PM on March 1, 2011 [1 favorite]
Good advice so far. I think you need to make a decision about how much you want to be involved in the day-to-day running of the business, or if not, what the other mechanisms for involvement are. It's very easy to be half-informed about issues, make decisions and offer input, and end up being a hindrance rather than a help.
Specifically, I'm thinking of "Have you thought about...?" kind of input, far too often that means that people have to be diligent about investigating tendrils that otherwise they would have closed off early, in order to give you an informed reason why not rather than making a gut decision.
Also, look carefully at the economics of Lake County, and the hot springs that are already operating in that area. The web site looks to be targeting a very high end customer base, and those customers may not materialize in the way that it's hoping for. "North of Napa" gets pretty... uh... not Calistoga or St. Helena ... pretty damned quick.
posted by straw at 2:34 PM on March 1, 2011
Specifically, I'm thinking of "Have you thought about...?" kind of input, far too often that means that people have to be diligent about investigating tendrils that otherwise they would have closed off early, in order to give you an informed reason why not rather than making a gut decision.
Also, look carefully at the economics of Lake County, and the hot springs that are already operating in that area. The web site looks to be targeting a very high end customer base, and those customers may not materialize in the way that it's hoping for. "North of Napa" gets pretty... uh... not Calistoga or St. Helena ... pretty damned quick.
posted by straw at 2:34 PM on March 1, 2011
Worrisome things that stand out to me:
$2.7M of the money they're raising is to retire existing debt. What happened to that money? How was it managed (well or poorly)? What did they do with it? If they didn't manage it well, what makes you think they'll manage the next round well?
The rate of return they're promising is based on the planned sale of the resort. Are there demonstrated buyers at the rate they're planning to ask? What makes them think they can get the price they are hoping to get? You know you many not get to be involved with the thing after it sells, right?
The prospectus is full of pretty pictures of how beautiful the space will be, but there's nothing about a demonstrated demand for this product in the spa community. Is there a shortage of hot spring resorts? Why are people going to come to this place instead of going to any of the other existing spas? What's to say it's not going to get built and no one will come? You'll lose all your money if that happens. The fact that they don't have a marketing plan in place is very concerning, especially in the middle of a recession.
100k is a lot of money. It sounds like your interest in this investment is because of your love of hot springs, not necessarily a love/wealth of experience with the running of resorts.
I'd spend the money taking your friends on hot springs trips! You're likely to get more out of that than dumping it into an investment that seems pretty uncertain.
posted by paddingtonb at 9:20 PM on March 1, 2011
$2.7M of the money they're raising is to retire existing debt. What happened to that money? How was it managed (well or poorly)? What did they do with it? If they didn't manage it well, what makes you think they'll manage the next round well?
The rate of return they're promising is based on the planned sale of the resort. Are there demonstrated buyers at the rate they're planning to ask? What makes them think they can get the price they are hoping to get? You know you many not get to be involved with the thing after it sells, right?
The prospectus is full of pretty pictures of how beautiful the space will be, but there's nothing about a demonstrated demand for this product in the spa community. Is there a shortage of hot spring resorts? Why are people going to come to this place instead of going to any of the other existing spas? What's to say it's not going to get built and no one will come? You'll lose all your money if that happens. The fact that they don't have a marketing plan in place is very concerning, especially in the middle of a recession.
100k is a lot of money. It sounds like your interest in this investment is because of your love of hot springs, not necessarily a love/wealth of experience with the running of resorts.
I'd spend the money taking your friends on hot springs trips! You're likely to get more out of that than dumping it into an investment that seems pretty uncertain.
posted by paddingtonb at 9:20 PM on March 1, 2011
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Yes. And based on your question, I think you *should* be represented by a lawyer. You absolutely need to understand not only the risks but the liabilities of being a startup investor.
Can I make demands or ask questions about management teams and systems. Or again is it just, "This is what we need. This is what we are offering in return. Take it or leave it.""
They are not doing you a favour by letting you invest; you are doing them a favour by giving them capital, especiallu in an economy where there isn't any. There are a million models for investment; you can be a silent investor and just let them get on with it, or you can demand a seat on the board in exchange for your investment, or you can do something in-between.
Please get professional advice from an experienced attorney here.
posted by DarlingBri at 1:49 PM on March 1, 2011 [1 favorite]