Good entrepreneurs deserve good investors

Shyster 1(1)Recently two people came to see me and talk about their business.  They are in the food business.  I have found that each entrepreneur is different and that many people in the food space are not particularly strong when it comes to the business end even though their product may be off the charts.  This is one of the reasons that incubators like to see co-founders who are not necessarily even in equity but each play different roles where strength is needed.

I won’t share the name of the company but it is a type of retail store.  Their product is over the top amazing.  When they opened a line was formed and honestly never stopped.  They had stumbled on to something unique and delicious.  Possible investors started calling and knocking on their door.  They didn’t take those calls but kept their head down putting out a delicious daily product.

Fast forward, for whatever reason, timing more than likely, they decided to take on an investor.  A pair of investors who came together who would help them create a holding company, put money in the business and allow them to roll out their concept into different locations with the idea that eventually they could just continue opening up multiple shops across the country on their own or they could go down the franchise path.  It all sounded good but it wasn’t.

These investors were shysters.  For those who do know this yiddish word, a shyster is word for someone who acts in a disreputable, unethical, or unscrupulous way, especially in the practice of law, politics or business.   They put 1/3 of the money that they had agreed on in the holding company, they took 40% of their business, they told them that if they needed more cash that they would charge them 4% interest, they wanted to take a salary for themselves, they began to sign contracts for the business to expand in locations without the entrepreneurs knowledge, they put up a website that they had no idea about and all of a sudden got angry phone calls from people who had filled out the catering and delivering of the product daily and they’d show up at the stores and hang out behind the counter.

Granted the entrepreneurs made some seriously bad decisions in getting into bed with these investors but I also hold their lawyers accountable in allowing them to sign up for this.  One of the entrepreneurs just wanted to hold his nose and move forward but to me the writing is on the wall that these investors just want to bleed them dry because they have zero concept on how to build a franchise brand.  The other entrepreneur was besides herself.

I recommended they speak to a smart lawyer and one who had the ability to really see the holes in the contract.  I gave them a bunch of other advice but the whole meeting left me so angry.  Being able to build something from scratch, with sweat, tears, no sleep and a vision is one that should be applauded with an investor that supports not abuses.  If I ever saw those investors I’d have a hard time not going off on their abysmal display of taking advantage of people who worked hard to build something unique.  In the end, if they can’t get these shysters out the whole thing will crumble.  There is no doubt that the entrepreneurs fucked up too but it is a disgusting display of people with pockets of cash taking advantage of creative people who didn’t get the right advice, didn’t have the right lawyer and obviously didn’t know what the hell they were doing on the business end.

If you aren’t sure, ask questions.  If it doesn’t smell good, it usually stinks.