Wine InStyle case - what to do?

With Wine InStyle, Robert Eberhart made use of a regulation change in Japan to build a promising wine business. His outsider status posed challenges (such as the near-impossibility of obtaining a wholesale license as a foreigner), but starting his business in Japan also offered considerable advantages (such a favorable tax environment and discounted space for his new venture). Leveraging those - and a partnership with Dick Maher to break into the California Wine Industry - brought Wine InStyle impressive sales growth (from $0.1M USD in 1999 to $4.1M USD in 2007), which still continues strong.

Now, Eberhart is at a decision point. He wants to spend more time in Palo Alto and give up day-to-day financial oversight of a Japan-based company. Wine InStyle is also facing a major cash crunch as it tries to support rapid growth. A potential solution to both of these problems has appeared in the form of a Japanese investor group offering a cash infusion in exchange for controlling interest in the company. Should Eberhart take the deal?

Points in favor:

• It offers a quick solution to cash issues
• It offers a liquidity event for Eberhart and other early investors
• It (likely) will make Eberhart free to spend more time in Palo Alto
• It could look like a vote of confidence in the new Japanese CEO (Khoo)

Points against:

• It may be possible to resolve cash issues without giving up control, by cutting costs
• It's unclear whether proper financial oversight will be exercised if Eberhart leaves
• It's possible the bidding group is a disguised rival or ill-wisher, bent on destroying Wine InStyle (and/or lacking the promised cash)

The last point against could be mitigated by notarized investor certification, and Eberhart absolutely should not agree to the deal without certification. Beyond that, the right decision depends on Eberhart's personal priorities. If family is his current priority, he should sell controlling interest as long as the investors reveal their identities and have the promised cash. If he's still deeply emotionally attached to his company and its future, he should sell only if meeting the investor group convinces him that they will exert their control responsibly. If he's not convinced, he should retain the company and look at alternatives to reduce his involvement (e.g., hiring a financial manager) and alleviate cash flow problems (e.g., aggressive cost-cutting or selling a non-controlling stake).