436% risk-free return for 2 years? Easy!

Yes, you heard right. That is 436% for two years. It is risk free. And yes, it is profitability. But, in order not to mislead you, I’ll just make a reservation that it’s not about a perpetual motion machine or the underground pyramid of Cheops. Below we will look at a spherical, like a horse in a vacuum, venture financing scheme proposed to us by one investor. But first things first.

A bit of history

September month. Pursuing the promotion of one of our projects, we have the idea of ​​creating one service that greatly simplifies the work of a PR person. Without thinking twice, we collected a beta version in a couple of weeks, and in October the service had already moved to the commercial stage. Coming out in the same month at a profit of $ 1000, we were puzzled by the development of the service and moved to the stage of active search for investors.

More interesting ...
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Search for partners

As is known, the availability of a ready-made prototype, and, moreover, a profitable one, greatly facilitates the search for investors. There were a lot of people willing to meet. But at the exit of all, either they scared off big risks, or the amount of investment required was too small to cooperate with us (we asked for 1,000,000 rubles). This continued until mid-December, until we met the hero of our story. In order not to initiate the bubbling of brown liquids, let us leave his identity a secret. Yes, and under the pseudonym Ostap Bender, he looks more colorful.

The speed of making decisions was amazing. From the initial description of our system to agreeing on a business plan and a financial model, only 4 days have passed! It looked just amazing compared to other investors. I was very pleased with the involvement and interested person in the project. And after consideration and approval of all documents, a meeting was scheduled.

Night, street, lantern, pharmacy

Moscow, evening, city center, bistro. Bistro? Well yes. A bit of a strange choice of course for business meetings, but the owner is the master. I go inside and dial Ostap's phone. A pleasant looking man picks up the phone. We meet, take tea, coffee and head to a secluded corner in the far corner of the cafe. Having washed down the pre-cooked pancake with tea, my interlocutor begins the conversation. As is often the case, he talks a little about himself and smoothly proceeds to his principles of venture investment. In words, everything looks like a fairy tale. Investments are made in tranches, according to the approved plan. The term of his participation in the project is 2 years. If during these 2 years the profit from the project exceeds its investment, then it will give us its share. Great, isn't it? But, what if there is no profit? Nothing, he says. That is why investments are made in tranches in order to minimize their losses in the absence of a positive growth trend. It is on such conditions that over the past 3 months they have been invested in a little more than 20 projects of varying degrees of readiness. Looks great, right? Agreeing with these principles, we proceed to discussing the project and within 20 minutes we come to the conclusion that we are interesting to each other, and Ostap can even assist in the early registration of our joint venture right up to the New Year. On this note, we say goodbye and agree that the next stage I expect from him constituent documents.

"Four hundred relatively honest ways to withdraw money"

With a sense of accomplishment and anticipating the completion of my portfolio with another successful project, I am driving home. Once again, marveling at the speed of my future partner, I discover a complete set of constituent and not only documents at the post office. But suddenly, the feeling of joy is quickly replaced by the feeling that an elephant was yelling at me, then fell from above, crushed and became rotten. This condition was caused by an amazing explanatory note, which was attached to a very strange set of documents. Having opened the letter, I immediately sensed something was wrong when I saw several loan agreements among the statutory documents. And opening an explanatory letter, all my hopes finally collapsed. Forgive me for different copyrights and other patent trolls, but I will quote in full:

“The entire volume of investments is recorded as a contribution of the founders to the authorized capital of the enterprise (MC).
Shares in the Criminal Code are distributed as follows: 51% is an investor, 49% is the author of the idea.
Both founders by law must themselves pay their contribution to the Criminal Code. Therefore, the investor gives the author a loan in the amount of his share (49% of the total investment), which is signed by the relevant loan agreement at 8% per annum.
Investments are transferred to the company’s current account as necessary as a contribution of the founders to the MC.
After 2 years, the author undertakes to pay a loan to the investor in the amount of 49% of the authorized capital, and to buy out the investor's share at the price of 651% of the authorized capital, which is signed by the preliminary agreement on the sale of shares in the authorized capital.
Any funds received by the investor from the enterprise within 2 years will be used to repay the loan, and then to the prepayment for the redemption of its share in the authorized capital. ”

Apparently, the Great Combinator expects that the author of the idea did not go to school and could not read. And to calculate the economy of such a tempting offer, you will need a gravitapup, a shovelgame and a separator with a tranclucator. Well, we have them!

We take the requested 1,000,000 rubles and find that absolutely in any case, we must return the money to the investor. Yes, and to return in the following amount: 490 000 * (1 + 0.08) + 510 000 * (1 + 6.51) = 4 359 300. In other words, under the pretext of venture investments we were offered a 2-year loan at 436% (4 359 300/1 000 000). Or 218% per annum.

A sophisticated reader may ask me why it is impossible to take a bank loan ten times cheaper than that? I am afraid I do not know that.

Fairy tale is true, yes there is a hint in it

Friends, read carefully the documents that the investor gives you. For on paper, everything turns out to be completely different from the words. I sincerely hope that the 20 invested startups were fiction and no one would have to fall into sexual slavery financial bondage. I, of course, understand that startups must be profitable. But 218% at the seed stage is somehow beyond my comprehension.

PS Am I even at a loss for where to put it? In Startups or My Business? Or is it better in “I resent” or “I am mad”?