Friday, July 5, 2013

EB-5 visa through direct investment businesses: Would you pay $1,000,000 for 15% equity in a restaurant when you can get 100% equity?

I saw a really funny ad by Mr. John Shepherd, soliciting a $1 Million investment in his restaurant. The link to that ad is

What Mr. Shepherd neglects to tell readers is what is the actual purchase price of the restaurant and what is he investing, and what will his share of the equity and profits be? Failure to disclose material facts such as these is termed as securities fraud in the US.

Besides the fact that this solicitation is ILLEGAL and in contravention of US Securities laws, there is also the little matter of common sense: Who in their right mind would invest $1,000,000 for only 15% equity of a startup restaurant in an unproven franchise, when they could deploy the same amount to own 100% of their own restaurant in a proven franchise such as 5 Guys, KFC, Subway, etc. and get a solid ROI in the region of $220,000 to $400,000 annually?

Does Mr. Shepherd think that people who have USD 1Million are stupid? In my opinion, it would be an act of sheer stupidity to invest even a penny in this startup when they have safer and more profitable options such as auto dealerships, blue chip franchises, family entertainment centers, liquor stores, etc. available to invest in.

EB-5 visa seekers need to remember that they should avoid partnerships as these are just regional center business models in disguise. EB-5 visa seekers get the best results when they own and control their own Direct Investment Business, preferably in a blue chip franchise ranked within the top 3 of their business (i.e. Subway or KFC or McDonalds or 5 Guys, etc.) or a solid business such as gun stores or auto parts stores or family entertainment centers, as they not only get  significantly higher ROI but also offer easy exit strategies and the ability to avoid the conflict of interest and fraud that is widespread in partnerships and regional centers. EB-5 visa seekers should always demand notarised affidavits affirming full disclosure of all material facts by the regional center / partnership promoter + CEO + CFO, and avoid those who refuse to furnish these affidavits.

In case you need further information, please feel free to contact me for assistance.

Mohammed Shaikh, MBA, CFE, Licensed Business & RE Broker (CA & FL)

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