In Hong Kong, prominent angel investor’s dealings raise red flags

Jong Lee (left), an investor in a number of Hong Kong startups, speaking at a startup event.

Before launching Craftyful, Hong Kong entrepreneur Ken Lee was off to a dream start. His previous website, Lots of Buttons, which – you guessed it – sells buttons to hobbyist crafters – broke even within a year after it began. It made US$15,000 in revenue a month, raised some seed money, and won Tech in Asia’s startup competition in 2013.

Lots of Buttons sparked interest from some investors, and began fundraising to scale its operations. But it had one big problem: angel investor Jong Lee held half of the company’s shares, according to Ken.

He says that Jong then “dropped the bomb” by asking for more equity before raising money, effectively trying to control the company. Investors typically ask for more equity when things are going badly, not when the company is on an upswing, he adds.

“I generally trust people. But in this case, I think I should’ve followed another startup founder’s advice. He said he’s never seen 50-50 partnerships work out and that I should have had at least 51 percent,” says Ken.

“But I was like, ah no problem, we’re buddies. And then off I went to incorporate the company, giving his holding company one share and myself one. Famous last words.”

Ordinarily, getting Jong involved in your startup could boost your visibility. Jong is a familiar figure in the local startup scene. Born in Korea and growing up in Los Angeles, Jong landed in Hong Kong in 2009 and first worked in private equity.

He later started RGL Holdings as his vehicle to invest in startups – Lots of Buttons included – and is also a curator with TEDx Hong Kong. Most recently, he talked up his involvement with Hanson Robotics, a Hong Kong-based company in the business of building human-like androids.

Who is Jong, really?

It turns out Jong has a different side to him. According to sources familiar with the situation, he is currently involved in a series of civil lawsuits both in Hong Kong and abroad. In the United States, he is allegedly embroiled in a legal spat with Planteco, a company he funded that wanted to turn explosive material into non-reactive and non-toxic compounds.

At the same time, RGL Holdings faced trouble after most of the employees and partners in the company left, including CFO Veronica Dang and Bryan Cheung, founder of Goodchow.hk – another one of Jong’s portfolio companies.

Ken did not see these things coming when he decided to work with Jong, who he believed was a great asset due to his strategic and private equity experience.

Things went smoothly at first. Jong, who Ken met at a networking event, suggested switching from fashion ecommerce to buttons, and he recommended that the startup not hold stock and buy directly from retailers. The move realized a 70 to 80 percent profit margin since they’re buying cheaply from China and selling to the States.

See: 10 taxi apps you can use across AsiaBut Ken claims that most of his other ideas didn’t work, saying that Jong is “too high-level and not operational”. There were other problems. Ken says that Jong had reneged on an earlier agreement, putting $75,000 instead of the promised $100,000 into the company. He then says that Jong was not willing to give shares to some key staff, and he wanted to hire some people without paying them.

“If an investor is giving you this much grief at an early stage, it’s a bad sign. I decided to cut my losses and leave,” says Ken, who signed over his shares to Jong in return for the $25,000 he put in.

Moving on