How Startup Founders Get Scammed

Startup founders sometimes tell me about mysterious “services” they’re thinking of paying for. That’s when I get out my megaphone and shout into their ear “Never pay for that!”


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Entrepreneurs are hopeful people. They have to be.

But some scammers take advantage of that optimism to make a buck. And sadly, they like to prey on women and minorities.

They know that these folks have a harder time raising money and may be more desperate.

Let’s avoid you getting scammed. Here are some things you should never pay for:

1) Pitching investors. Investors like me listen to pitches all day, every day.

We don’t expect to be paid for it. We get paid when we invest, you grow your company, and go public!

Never pay to go to a pitch event. Ever.

Real investors will never charge you. Anyone who’s charging you is pretending to be a VC and isn’t worth your time.

2) Investment. Some so-called venture funds will charge you mysterious fees to get the investment.

Sometimes it’s a “syndication fee,” whatever that is. Sometimes they choose another name.

It’s like the Nigerian prince who needs $300 so $1 million will be released to him.

Whether it’s a Nigerian prince or a bogus VC fund, you should tell them to talk to the hand.

There are real costs to making investments: SPV incorporation fees, wire fees, etc.

But guess who should be paying those? The investors!

3) “Advice”. Don’t give up cash or precious equity for some amorphous “advice.”

If you want to give advisor shares to someone who has put cash into your company, feel free. Just be sure they’re spending at least several hours a month on your startup.

But if someone doesn’t believe in your company enough to put their own cash on the line, why would they want to be an advisor?

4) Introductions. Some scammers want to charge you for introductions to some magical list of investors.

This is a cousin to #1, the pay to pitch. And you should run away from both, as fast as you can.

Let me tell you how intros really work in venture capital. I invest in a company, then I e-mail my friends at a few funds I regularly co-invest with.

I tell them what I’m investing in and why. And I ask if they want to meet the founder.

How much do I charge the founder for this? Zero!

It’s part of the value I try to add at every company I invest in. It helps me win deals and helps the companies I’ve bet on.

I don’t want to see any of you guys get scammed. So be on the lookout for vultures circling trying to peck at your precious capital.

Real investors are happy to meet with you and help out for free. That’s what they do.

Anyone else is a clown who isn’t worth your time.

What other scams have you seen in startupland? Leave a comment at the bottom and let me know!

More on tech:

The Founders: The Story of PayPal

Why Drone Delivery Will Be an Awesome Business

Giving Investors What They Need to Say Yes

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Photo: “The scam truck” by jepoirrier is licensed under CC BY-SA 2.0.

4 thoughts on “How Startup Founders Get Scammed”

  1. My name is Yi Meng, yes I am famale, and minority founder. You said everything is true, and I appreciate you shared this information. I am the founder of CoCarting.com, the first Social Shopping marketplace, and we enable online shoppers to co-own cart- more interactive and fun to shop with friends or family. We are growing users and we got a great team. We haven’t find the real investment yet who wants make different of online shopping world yet. We are in the process, and your blog is really helpful. Thank you for sharing.

    Like

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