THE MIDDLEMEN
In 2003, our balance sheet showed a turnover of 3, 5 million euros and an EBIT of 300.000 euros, the business was going well, the banks liked our business model, and we got more loans. But the loans we could not use to order goods from China. Our turnover in European goods grew constantly and we could not cut it because we had an established infrastructure to sustain, also our margins were fine. So we used the loans to fulfill our payment terms with European suppliers.
Moreover, we permanently had to invest: our storage had to be enlarged, new working places were installed, and we built web shops and websites for our brands. We constantly expanded on all ends. Our plan was to sell “Producer to Consumer”, we wanted to find the shortest way from the manufacturer in China to the consumer in Europe, with just one stop in-between: us! This way the consumer would enjoy the lowest price and we the highest margin. By then, we were selling in four major eBay markets: UK, Germany, France and Italy; we calculated that we could sell full container loads within two or three months after they had arrived in Europe. Once a particular product was ordered, it still had to go through the several stages of production, delivery, and custom clearing; the goods had to be stored for a certain time, and it usually took between six and nine months until a whole container was sold. We needed to find financiers that would cover our financial needs for this time span. The time for a middleman had come.
SRI
Our most important partner in this regard was Sri, an Indian trader who lives and works in Vienna. He was and probably still is one of the biggest players in electronic wholesale business between China and Europe. He is short man with a big belly and a bulbous nose, not a big talker, but once engaged in a conversation, you immediately recognize him as a smart and clever guy who is very knowledgeable when it comes to the various aspects of business. Sri is a calm and congenial man, but it took me some time to get used to his Indian-English accent. I think during our first three meetings I did not understand a word, and maybe this was the beginning of our problem. His office in downtown Vienna could have equally been in Hong Kong or Bombay: solely Indians worked there, and nobody spoke German. Like most of the many companies in the import business, Sri had made a fortune after the fall of the Berlin Wall, meeting the Easterners’ desires for electronics from the West. Back then the demand for those goods was so high that he was able to trade bills of ladings for cash in his hotel room in Vienna, where he lived for some years, traveling between Hong Kong and Vienna, providing consumer electronics for the Russian markets. The Russians would then bring the goods from Vienna to Moscow, where they were finally sold on the black market. At the end of the 90s this business cooled off and the remaining electronic importers were looking out for new markets; they started to import cheap electronic goods for the new electronic chains that were opening up all over Europe.
I told him about my current business and that we had a problem financing our imports. He said he could get me anything I wanted from China, shipped in containers, and he would finance it; in return he wanted 15% for each deal; the money had to be paid within thirty days after the goods’ arrival. I knew that for this sort of deal he didn’t even have to use his own money, as banks in Hong Kong would give him sixty-days-payment terms to pay back a loan after the goods had left China. I found the offer was acceptable only for a little while; once the deal was running, we would have to negotiate a new bargain because on a long-term basis, it would be too hard for us to stick with these payment terms; I assumed that as soon as we made more orders, I would be able to extend the terms to 45 or 60 days.
For a start, we had a revolving buying limit of one million dollar, and we used it completely, from the beginning.
DAVID JACKSON
My first meeting with David Jackson (he had chosen the name himself) was scheduled in a pizzeria in downtown Vienna. Jackson was staying only for a couple of days in the city; we got in contact through a shared friend who had told him about my business, and Jackson had wanted to meet me right away. He had heard that I needed financing and had told my friend that he was exactly the man I was looking for. On the phone he named the restaurant’s address and asked me to be there the following day at noon; I came exactly on time. When I entered the place the owner, a small, pyknic, and grimly looking old man who looked like he had just jumped out of the Godfather movie, approached to inform me that it was a private pizzeria I had stepped into, that they were full, and, besides, for special guests only; who was I, he didn’t know me; he was sorry, but I couldn’t eat there. He was about to push me out of the restaurant when I hastily told him I had a meeting with Mr. Jackson. When he heard the name “Jackson” he looked at me, his face lightening up of a sudden;, he took my hand, smiling, and led me to a table speaking all the while about what a great guy and good friend Mr., Jackson was, “like my own family, you know”; he presented me to one of the waitresses: “a friend of Mr. Jackson! MY friend, he he “.While waiting, seated at a fine table in a discreet corner of the room, I had the chance to learn more about him and the pizzeria: already his father had worked there, every day, year after year, never being sick once. Without asking, the old man served me a drink and an entrée and kept coming back every five minutes to have a little chat and bring more drinks: “for my friend, he he”. Jackson arrived around one o’clock, at which point I had already infused five grappas and a few more espressi, feeling close to a heart attack. He was a good looking, slightly overweighed guy; red hair, pink shirt, a funny colored tie; he spoke with a strong Georgian accent and was a chain smoker. Jackson had come together with his CFO, a Software expert from Israel. The two did not seem very compatible. While Jackson only used short sentences and spoke extremely fast but very clearly and comprehensibly so, I had some difficulties following his CFO, who’d take several minutes to end a sentence, the vocabulary used being extremely complicated and highly sophisticated so that I only understood every second word of what he said. He had a scientific approach to even the simplest things. He told me he was an expert “something”, but that “something” was so sophisticated that I can not possibly recall what it was besides that it had to do with the internet, databases, copyrights, scenarios, fuzzy logic, network topology, SAP, ITTL and more abbreviations; the CFO was now applying that particular, exquisitely expert knowledge to Jackson’s fundamentally simple trading business.
Jackson informed me that EBay and online business in general were “the future”. He had heard I needed financing, and for him, on that score, there was no limit: “ten, twenty, thirty millions…the sky is the limit”, he said, and that he had storages in Hannover, Krakow and Dover, several companies around the world, banks and financiers being his best friends. He wanted to take the business to the next level with me.15% for each deal was his charge, to be paid sixty days after arrival of the goods, that were his payment terms; “sixty days and not a day more”, he said, otherwise I’d be in troubles. I agreed, but I needed a ninety-days-payment term. We planned to order for one million US$, but first I had to clear all the details with his CFO.
LEAVIT
Leavit is a company on the British Channel Islands, a so called offshore company, and it is specialized in financing other companies. I got Moses Motniak´s contact details from a friend in Chicago. “Motniak is crazy”, that friend said, “Ask him, maybe he jumps in”. Motniak spends most of his time in Monaco, which he describes as the “rich men’s hell”, and is interested in every business he can lend money to, at high rates and risk. Qentis sounded interesting to him, and since it was, put in his own words, “yet another chance to escape from hell for a day”, he came to Vienna to have a look at our operation and see what could be done. When I picked him up at the airport, I met a short man in his 50ies; very calm, very precise in the way he expressed himself, and seemingly pessimistic, but I soon noticed that Moses Motniak also had a great sense of humor. Back at qentis, we met his local lawyer, someone from one of Vienna’s major and most expensive law firms. Having shown them the office and storage of the firm, we went for lunch, and Moses agreed that, once all details in the financing of qentis were cleared, we could start with five million US$ and then see how things would develop. About three weeks after his visit I got the first draft of contracts from his lawyers. Drawing up the contracts with Leavit was one of the most demanding mind-experiments in my business career. While we had never bothered to set up contracts with our other financiers -they simply issued invoices to us and held the goods until payment- Leavit demanded waterproof contracts; every single detail had to be accounted for, every possible situation was to be considered. Also, I never found out who’s money it actually was that Leavit used for their business ventures: once we were told it was an American fund, then the financiers were Russian investors, next it was a rich Swiss family’s money we dealt with. In the course of the negotiations over the contracts it became apparent that Leavit wanted to arrange a loan with qentis, which was, in my opinion, a bad idea, but since it seemed that such an arrangement was our last chance with them, we agreed. We were, however, obliged to get our bank’s approval for every loan that was awarded to us; they wanted to know the creditor behind the offshore company. So Leavit sent us a fax to reveal the identity of the creditor:
“Leavit inc. (British virgin islands) is a company owned by MMWW inc. (British virgin islands) which is owned by Zulinu Holdings inc.(Cayman Island) owned by Legma inc. (isle of man) which is a subsidiary of Erleben Trust (Liechtenstein) which is owned by K&T Versicherung (Liechtenstein) […].”
I googled the K&T Versicherung in Liechtenstein to find out more about the obscure financial backers of the company and learned that K&T was advertising trust services to international businesses. It was useless to send this information to our bank in Vienna, so we had to find a different settlement. Four lawyers, seventeen contracts (filling more than two hundred pages), and one year later, we were finally ready to go. In the meantime, three lawyers had been fired or had given up on the project. The completed contracts regulated everything: which time had to be used in communication (it was Monaco Time), which way of communication was to be used (fax only); twelve different forms were designed for our communication; one lawyer had to leave because he had mistakenly overseen a detail in the contract that enabled qentis to claim money paid for transport bills if a container went overboard during transport. The contracts even regulated which forwarders in Vienna were authorized to bring the already paid for products from the forwarders’ storage where the goods got stored, on behalf of Leavit, to the qentis storage. In short: Everything was undertaken to make the whole affair as complicated as possible
Many times my partner Davis called on me to give up on the business; the effort wasn’t worth it, he opined, it took too much time, and he surely was right; it really was a mental exercise, but in the end, we made it.
The funny thing about the whole Leavit connection was that Moses Motniak loved to come to Vienna and was ready to jump into a plane anytime to discuss the most unnecessary matters personally with me and the lawyers. After meetings he would take me aside and tell me that we absolutely had to celebrate; usually, his excitement was exclusively and solely incinerated by the insertion of a new comma in the contracts; but the absence of magnificence in the cause certainly did not matter to him: for Moses Mosniak, anything was worth celebrating. He usually stayed in the Hotel Schwarzenberg or the Imperial, the best places available in the city, and he would always reserve tables in excellent restaurants and ask me to bring all my friends, the more the better; sometimes there were twenty people sitting at his table. Moses himself usually appeared in zebra style or pink jackets with long black leather cloaks; he once asked me to call him Moishe Maserati… he was able to entertain the whole party in different languages until dawn. His repertoire included stories of his celebrity friends such as Tony Blair, the Beastie Boys, or the King of Bhutan, whom he visited every year in his royal palace in Thimphu.
When we finally started to work together, I came to realize how difficult it was to stick to all the conditions recorded in the contracts on a day to day level. Even two of our forwarders and our insurance company had had to sign contracts with Leavit. Again we had to pay 15% per deal and we had 90 days after the goods’ arrival in Vienna to sell them. All products financed through Leavit were stored at a forwarders’ place, and each time we needed something, we had to use one of the forms applying for permission to take the goods into charge; we would get another form back, then send a fax to Leavit including a copy of their invoice to qentis; next, they would in return send a fax form with payment instructions, and we would send yet another one to them with a copy of our proof of payment, only to receive again a fax from Leavit which had to be copied and faxed to the insurance and our forwarder; we would get back their confirming faxes, fill out two new forms and fax those back to Monaco. I had, in fact, to hire a new employee to fulfill all the tasks in connection with Leavit. And the increasing complexity related to our dealings with all the other financing partners meant increasing costs as well.
A maybe interesting outcome of qentis’ bankruptcy is that none of our partners lost as much money as Leavit did; despite the perfect contracts and all the lawyers engaged (I later learned that Leavit had spent 70.000 euros for attorney’s fees), they lost more than they had invested as they had no further plan what to do with the goods left after the bankruptcy and so had to pay storage costs for months. Obviously, the business was too structured; after signing the contracts we had never got in touch with anyone from the company anymore besides sending forms by fax, while with our other financiers, we had at all times stayed in close contact.
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