evil, grin

When The Investee Thinks They Know More

In one of my earlier encounters with people asking for online investment I came across a gentleman putting forth an investment scheme for a clothing shop. He was quite sure his proposition was foolproof and sensitive to questions and criticism of any kind. Here is a the story of how it all went down.

 

“I recently had the chance to interact with a person who was actively seeking investment for their venture. This was a brief and rather non-verbal contact. What started as my interest in a venture that could lead to potential investment has ended in a post for this blog much to my dismay and much more to my surprise. This was totally unintended.

This guy wanted basic investment to start a shop to sell wholesale clothing. This is very common in Asia and South-Asia. Being very rich in cotton resources, clothing and its various trades come automatically to its people. So does the vast amounts of knowledge that goes into making cloth and dresses. The thing is, when a country has a major market; it is highly probable that even a layman of that country will have the most basic knowledge of its major market, which leaves little to double-crossing. The textile market in South Asian region is nourished by years of investment, which means people of these countries don’t have to go to schools to learn how to weave cloth, which might be the case in the West.

 

clothing shop

 

Coming back to investment for that guy’s shop. Upon much inquiry, I learnt the following:

  1. The investment was a scheme. As in you could invest and earn a return up to 10%-12%.
  2. The shop would not open unless a minimum amount was available.
  3.  If you want your investment back you would need to inform 30 days in advance.

Frankly, it looks like a Ponzi scheme or a bank scheme something like a fixed deposit. For people who don’t know finance, a 10%-12% means if you invest 5000 rupees, you get Rs.500 – Rs.600, which is by far a good return rate. But what does it mean in business?

For a business to pay out that much i.e. 10%-12% from the start, (again very interesting to note) they should have a budget of Rs. 300,000 – Rs. 400,000 monthly! That is a lot of money. And let us break it down to bits:

  1. Salaries
  2. Rent
  3. Décor of the shop (since it is the start)
  4. Inventory (in case of wholesale will be your own, can be the minimum amount)
  5. Payout to the investors.

The five (5) most basic items of expenditure that take up to 70% of any investment available. Now here comes the shocking reality! This was my analysis of a per month expenditure of a clothing shop. This was not the analysis that we did mutually.  For an investor to put in money and an entrepreneur to use that money even if it is Rs. 2000, the terms are always laid out clearly and precisely and mutually. This was not the case. The terms that were put forth were the three (3) that I mentioned earlier.

 

schemer

 

Summing it all up, the deal was not cracked and I wished the guy luck in his endeavours. Maybe he even thought I was joking when I asked him proper questions or maybe it scared him. But he reacted like a victimised person. This was the most uninviting reaction one can get to investment initiatives. It made me think if he was really asking foolhardy people for cash and building his own dreams much like schemers. Some people like quick returns and don’t ask too many questions. Some people do look for returns only. What if he was on the look out for such people?”

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