Is your Investor a SCAM?

Walter Devins, Attorney

Recently Venture Capital and Angel Investment Groups are investing in new ideas and companies.  However there are less than honorable individuals out there trying to take advantage of entrepreneurs who are passionate about their companies and desperately want to obtain startup capital.  Here are the top five signs that a potential investor is trying to scam you:

1. The majority (or only) communication is done by email. It is OK to start with email, but there should be many phone calls and meetings in person before any investment is made. I have never been associated with a company receiving an investment where the entrepreneur and the investor did not meet in person.

2. The investor requires some money up front.  Now you may be saying that sounds crazy, I would never pay money to get money.  I have seen some cases where it can be cleverly concealed such as “paying a document processing fee” or paying “closings costs on a major loan”.  You should NEVER pay money to get money.

3. The money, or rather the offer for money, comes too easily. Any offers made by an investor who does not have an intimiate understanding of your business or market, and who doesn’t challenge any of the assumptions that you have made is likely not a true investor. People do not like loosing money, so if someone is forking over real cash, then they want to be assured you aren’t going to waste it. People don’t mind giving away fake money.

4. Referrals; there are none or they are hard to reach. You should ask for the referrals for other companies that the investor has worked with.  This is good for two reasons.  First, you can validate that the investor is real and is not trying to scam you.  Second, you can find out what type of partner the investor will be; hands-off, micro-managing, or great to work with.

5. Website; it shouldn’t look like a scam, but you can learn a lot. Most websites will at least list their contact information (phone number and mailing address), do a quick Google search of the mailing address and if it comes up as a “Virtual Office Space” then RUN! Or if you call the number and there is a very professional sounding voicemail system but you can never reach someone, then RUN! (Its very easy to set these voicemail systems up with

Walter Devins

Harrison & Devins, PA