Startups · Entrepreneurship

What are the most usual scams from people posing as startup investors?

Kashif Jehangir Assistant Manager Administration at Private Company

September 23rd, 2016

Pretty sure there are a bunch of scammers looking to take advantage from startups that are in the process of raising funds. I think by posting here some of the usual cases it could be of tremendous help to guide some founders in order to avoid falling into the trap of these bad actors.
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Shingai Samudzi

September 23rd, 2016

Anything that involves paying to "get access" to potential investors

Rob Adams Advisory Board Member at PhotoPad For Business

September 23rd, 2016

I don't see many scams that have someone posing as an investor at their core. In the US, you can check if they're a qualified investor and that will remove those that are posing. 

The common scams are those that promise some service for a defined portion of the round being raised, not for equity or direct payment.   I've seen accountants, lawyers, marketers, and brokers who will offer services based on a given number of points on the round.   For instance, a broker will say "I'll intro you to my network, which is yuge!, and tremendous, believe me!, for 8% of the round."  Then nowhere in the language of the contract does it say that the round has to come from their introduction.  Lawyers will look over your docs or prepare them for a percentage. Accountants will manage the funds or help you redo your cap table etc for a percentage.  Marketers will clean up your pitch, advertise, build you Exec summary and so on so they are as pretty as possible ... For a percentage.   

I become very skeptical every time I see someone who wants a portion of the cash.  This isn't to say that everyone who does this is a scammer.  I know a few people including lawyers who do this legitimately. However their fees are only a little higher than reasonable and customary since they are taking on the work with the risk that you won't get funded.  

The next set of scams all involve people who want to use your venture to enrich themselves non-monetarily.  Things like taking credit for your success, marketing themselves or building their network based on your work.   I've seen pitch advisors who just coach you on public speaking, go to every one of your pitches and pass out business cards.  They don't really help you all that much but use you as a marketing vehicle.  Sometimes these people can come clothed as investors, but it's rare.  

There are others, to be sure, but none that I've seen where someone poses as an investor. 


Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

September 23rd, 2016

Most of the scams go the other way.  A lot of entrepreneurs taking money and labor from people knowing that they have nothing to deliver.  You should always be suspect of paying for access to investors, as opposed to paying for marketing to investors. I am always skeptical of lawyers who work for stock because they are usually inexperienced.  

Tom Duffy

September 23rd, 2016

lets try to make some clarity you cannot go out to the general public and offer shares of your company without having the documentation ie:reg D,Reg A ,RegA+
You can go to friends and Family and offer shares you can go to the SBA and get start up financing but that is debt and good luck. You can get payday loans .You can do a crowd funding campaign and offer shirts and but you need a professional to put together the content and bloggers and someone to get your friends and family in the game  

David Austin Relentless problem solver and innovator.

September 25th, 2016

You should always talk to others who they've previously funded, regardless how confident you are of the investor.  Always.  They may even be on the up and up, but bad for the company.

Jeffrey Allen CEO at Globalcrossroadscapital.com; a US Vet-owned IR/PR firm with 8,532 1st connections

October 3rd, 2016

GOOGLE "Seminar Soundbite Seminar - Ways Borrowers BS Funders" And you will find while financial fraud is on the rise it mostly from the borrowers. Like the ones that expect that funding be guaranteed merely for the asking and everyone should be paid on the contingency of what the borrower may or may not be capable of doing. Like meeting funding approval criteria. And yet there are 4 reasons why 95% of the dealflow in the US gets rejected by investors; incoherent, conceptual, deceptive, and no skin in game. You know... the ones who ask for $100M but can't differentiate one type of capital from the other to prove they qualify while not having two nickles to rub together.