Check out investors very carefully

SMALL BUSINESS

September 28, 1992|By Jane Applegate

Every entrepreneur dreams of finding a deep-pocketed investor who shares his or her vision -- especially now, when raising capital is so tough.

But outside money always comes with strings attached. And you have to make sure the strings don't become a hangman's rope for you or your business.

Dick Forquer, founder and president of Piacere International in Glendale, Calif., believed that he had found the perfect investor to help expand his espresso coffee company. The Swiss man, who owned several successful restaurants, was intrigued by Mr. Forquer's new way to make multiple cups of high-quality espresso -- a strong, brewed coffee long popular in Europe.

Not only was the investor enthusiastic about Piacere's products, he appeared to have unlimited cash.

"We needed money to begin building our own machines," said Mr. Forquer, who began developing a more reliable and less expensive espresso-making machine in 1984.

In two years, Mr. Forquer's new partner poured $500,000 into the company in exchange for a controlling interest. The investor was secretive about his personal life and his finances, and Mr. Forquer learned not to ask many questions.

In early 1987, suppliers began complaining to Mr. Forquer that they hadn't been paid. It seemed odd because Mr. Forquer was signing and sending out the checks as usual.

"We found out my investor was taking checks out of the envelopes and stealing them," Mr. Forquer said. "When I confronted him, he admitted he planned to sell off the assets and take the company into bankruptcy." Why? Because he was apparently running out of money.

Mr. Forquer pieced together a few more chilling facts: His "Swiss" investor was actually from South Carolina, and was using an alias.

Furious, Mr. Forquer threatened to call the state attorney general's office and expose him as a crook. Faced with exposure, the investor panicked and agreed to sell Mr. Forquer back his stock.

The shaken entrepreneur mortgaged his home, put $50,000 in a briefcase and handed it over on April 1, 1987. That was the last he ever saw of his silent partner.

The story has a happy ending.

Determined to save his reputation and his company, Mr. Forquer met with every vendor and supplier, working out ways to repay the debts and re-establish credit.

"My accountant said there was no way the company would survive, but I said if I go down, I was going to go down fighting," Mr. Forquer said.

Today, Piacere International, which sells everything from the liquid espresso to the cocoa traditionally sprinkled on top of a cappuccino, is flourishing. Sales reached $1.5 million in 1991, up 60 percent from 1990.

Mr. Forquer's staff can complete 12 handmade espresso machines on a good day.

The company has 4,500 clients and is developing a machine to serve the growing demand for home espresso machines. Meanwhile, coffee lovers can sample the company's coffee drinks and Italian delicacies at a cafe at the corporate headquarters.

* * * How can a business owner on a budget check out a potential investor? Joseph F. Troy, founder of Troy & Gould, a Los Angeles law firm specializing in corporate finance, offers these suggestions:

* Public records provide a gold mine of information. Check the state and federal courts to determine whether anyone has filed legal action against the potential investor. Check the divorce filings for any marital problems that may jeopardize their financial health.

* Call government agencies to determine if any regulatory action has been filed. Check with the enforcement division of the Securities and Exchange Commission or the state corporations commission to see if any actions are pending.

* Ask your banker to run a credit check on the person.

* Call competitors and colleagues and ask for a character reference.

It's essential to attract the right type of investor, especially if you ever want to go public or do business with the government or large corporations, which are usually very careful about who they do business with.

"Make sure your investors are the kind of people you want to be associated with," advised Mr. Troy.

(Jane Applegate is a syndicated columnist and author. Write t her through the Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.)

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