A close friend I've known for decades, a successful entrepreneur, came to me last summer, saying, " "I've got an investment for you, the best thing I've ever been involved with--a sure thing. This is going to pay for our children's college educations. You really, really should do this." So, I invested.
Four months later, he called to say that his lead investor pulled out of the deal and that I should vastly scale down my expectations--though, in his opinion, the deal was still a good one. I can get part of my investment back; the rest must stay in the deal. My friend made a considerable commission for his fundraising efforts.
I signed contracts explaining the risks involved, but given my friend's personal assurances, and the fact that he has already reaped material benefits from the deal, I think that he has the moral obligation to make me whole if I ask him to buy me out and return my entire original investment. Am I right?
-- Misled and Miserable
Dear Misled and Miserable,
I take for granted that this man believed what he told you (and isn't a professional swindler). A close friend would be a great fool to lure you into a poor investment and put your friendship at risk--which I suspect has happened.
Nor do I have to point out that implicit in any investment is the possibility of loss. Without risk-if an extraordinary profit was guaranteed--why would the dealmaker involve you at all? He could simply put in more of his own money, and further magnify his profits.
I would answer that your case is different. The majority of his other investors are likely people used to investing in startups, and are, or should be, aware of how fickle such investments can be. A sophisticated investor once told me that he hears about ten "surefire," highly profitable deals each week. Few pan out. Had he been approached by your friend, he would have done a fair amount of due diligence before putting money in and he would have no moral claim to request money back if the deal didn't work out.
From your letter it seems you aren't in the habit of seeking out such investments. Your friend solicited your participation, and though his motives might well have been pure (indeed, he thought he was doing you a favor), his usage of words such as "sure thing" was irresistible, but on his part irresponsible. Oddly enough, this irresponsibility most likely resulted from his own tremendous confidence in the deal. But I do feel you do have the moral right to ask him to reimburse the money you invested.
Before you make the call, do two things. First, consider that your request may put at risk your friendship of many years. Your friend, after all, probably sees the matter quite differently---"Hey, I tried to do the guy a favor, my intentions were pure, what's he so angry about? You win some, you lose some. Everyone knows that" Weigh your friendship against your savings.
Finally, write down the answer to this question, and consult it the next time you hear about a get-rich-quick investment: "What should I learn from this experience?