Another suicide shakes the investment world
About three years ago an interesting share prospectus crossed my desk. It was a glossy brochure inviting me to invest in Agave Distillers, a company preparing to produce ‘tequila’ at a distillery about 10 km north of Graaff-Reinet. The town is situated in the heart of the Karoo in the Eastern Cape and is the last place you would expect to find a hard liquor distiller. Of course the term ‘tequila’ is reserved for Mexican producers and the company thus had ambitious plans for marketing the liquor as Agava, producing three products Agava Blue, Agava Silver and Agava Gold for distribution to the American and international markets.
The prospectus looked great and they only wanted 100c of my hard earned cash for every share. But on close inspection the opportunity appeared flawed. For a start the person recommending this ‘over the counter’ share was already taking 25% of the selling price in commission for getting me in on the ground floor. Any investment where the odds are stacked 25% against you at the outset is hardly worth considering. The second ‘warning sign’ was that the company’s ambitious sales forecast didn’t seem to generate enough revenue to make the venture truly profitable.
This company looked more like a break-even prospect for a handful of stakeholders rather than an opportunity for a massive share offering. And that’s probably why they never tried to raise finance on the stock exchange in the first place.
One tequila, two tequila, three tequila – floor
Despite some evidence the company was making good inroads into the international ‘tequila’ market – even exporting to Mexico – Agave Distillers could not keep its doors open. On 29 January 2008 one of the company directors, Jan Terblanche, died in an apparent suicide. Shortly thereafter Be-All Investments applied for the company to be placed under liquidation. The provisional liquidation was granted by the Cape High Court and Brian Shaw of Progressive Administrators was appointed to manage the affairs of the company.
MoneyWeb reports that Be-All Investments is held by Keith McLachlan, ex-Chief Executive of Dimension Data. McLachlan invested a great amount of time and money in the venture, and appeared confident the business would be profitable. However, in Agave Distillers’ latest annual report, he had all but given up. He wrote: “Although we (The McLachlan Family Trust) have suffered an enormous financial loss, it is with a great sense of achievement that I was able to leave the company with a pristine production facility bristling to take on the world market place with products that equal the very best of agave spirits ever to come out of Mexico.” Estimates put the facility’s production capacity at around 1 200 litres per day.
Will the Financial Services Board step in?
The company punting shares in Agave Distillers (and a number of other small business ventures) was Capital Commitments Limited. It seems Terblanche was also the financial executive director of this company... Although the Financial Services Board (FSB) rejected this company’s application for a financial services provider licence, two other companies trading from the same address are registered. They are Capital Commitments Securities and Capital Commitments Portfolio Managers.
A number of analysts believe it is time for a closer examination of this company and the network of small businesses it offered shares in. We noticed that one of the company’s initiatives was to establish a trading platform for ‘over the counter’ share transactions. Although the website created for this purpose is still “under construction” it would probably have been little more than a device to increase the liquidity in shares in extremely risky micro companies. Questions must also be asked about how Capital Commitments could be a market maker in shares in companies which they had vested interests in.
This tequila business always looked flimsy
Marc Hasenfuss of Finweek had been warning investors about Agave Distillers and similar ‘opportunities’ for quite some time. He also hopes the latest developments will lead to a wider regulatory investigation into “methods used in peddling shares in a host of unlisted venture capital companies.” Hasenfuss estimates the unlisted ‘venture’ capital sector could have snatched as much as R300m from unsuspecting investors in the past few years…
The combination of reckless marketing and questionable corporate governance employed by these venture capital start-ups are early warnings sings of impending disaster. Management’s massive sales targets turn out to be totally unrealistic – and promises of future main board listings turn out to be ‘pie in the sky’ marketing talk. Most of these ventures don’t even qualify for the junior Alt-X board – and that’s why they have to market so aggressively in a largely unregulated market.
Editor’s thoughts:
The liquidation of a company like Agave Distillers shows how even the greatest business plan (on paper) can fail in the real world. To its credit, Agave Distillers got up and running and was on its way to establishing a footprint in the market it had chosen. But for now it appears the sales were not enough to support the business model. Have you invested in any over the counter shares recently? Send your comments to [email protected], or add them below.
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