Looking for Capital? Don't be Scammed!

[jasaunders]

On my train ride home yesterday I was reading Entrepreneur magazine and came across an interesting article about people being scammed when looking for capital.

While we all would like to think that we are smart enough that it won't happen to us, this story makes you think twice. The depth the scammer went to in order to appear legitimate is amazing.

I found the link online here:
http://www.entrepreneur.com/magazine...st/181828.html

[Cole Taylor]

I wont go as far as to say that the guy deserved it, but he knew it smelled funny and did it anyway. I can tell you from personal experience that there is a whole world of pseudo facilitators out there who either claim to have the money and want $X for due diligence or have someone that will fund your project.

I've had people fabricate some interesting stories...some will even try to sell you on their "fabricated"" linkedin profile.

[jasaunders]

But few go as far as having an office, staff, references, long legal paperwork, and a face-to-face meeting. Most scammers are in for a quick buck on the extremely gulible. This shows that even a seasoned entrepreneur can fall prey to a well constructed scam.

[Cole Taylor]

Off the top of my head I recall at least four people in the last 90 days, all of them had offices, some of them had 500+ connections on linkedin, all had references, all sent term sheets, all wanted money upfront at the end of the day.

The scammers take many forms, be careful out there.

[boneill]

yeah, the scammers could be the people looking for capital as well as the people looking to provide capital. That's why I like to loan through a third party like www.prosper.com

[David Rocci]

The company I am working with just paid $9750 or something like that to enter into a due diligence period!

The problem is that many investment bankers and private equity folks require this type of commitment. The request for the commitment is not in itself a turn off but the fact that seemingly normal business interactions can turn out to be a fraud.

And how did this guy know it was a fraud? Just because the equity company never invested in his company? The article is pretty vague about how they were certain it was a fraud. I get the impression the article is leading you to believe that paying to enter into a due diligence agreement is fraudulent...

The lead guy on our project is 67 and he's been involved with many, many private equity deals and he says that this is a normal business practice.

It's too bad the article is not more detailed about what to look for and how to spot a fraud. It's ominous and vague and downright scary...but provides no follow up.

Did I miss something?

-dr

[jasaunders]

I got the impression that once the guy made the earnest money deposit of $10,000 that he never heard from the guy or company again. The article does say that investment banks and lenders do usually take a fee and I also agree that the article doesn't give much in the way of how to spot a fraud. But the guy did go to some lengths to investigate the company beforehand, he didn't just send off the money to Nigeria.

[Cole Taylor]

"Several weeks earlier, Nielson had posted his company's business plan on one of the many websites that purport to connect entrepreneurs with angel investors and venture capitalists. Nielson, 37, knew the drill. He had worked with investors and investment bankers before--he had even invested in other people's businesses--so he was not going to get too excited about anything before he checked it out"

If a supposed VCs, Angel, etc. want money up front for due diligence end discussions with them right there.

The article alludes to the scammed going the angel/VC route not the IB route.

[jmsb]

great read.

[wully00]

Wow thats incredible. great great post.

[MBAmale]

interesting. Particularly, I don´t think a new VC must receive any upfront money if they are the ones supposed to be investing. If they want any garantee the Enterpreneur can provide some Accomplishment Garantee contract from an Insurance Company, isn´t that true?