A venture studio is promising you a huge check. But there’s one catch: $20,000 a month in “service fees”.

A founder on Reddit is facing this situation right now. “Service fees” are one of several scams that so-called “investors” run on startups.

Startupland is the Wild West of capitalism. You can make a fortune, but you can also get ripped off.

Here are five common scams to look out for:

1. Service Fees. No investor should be charging you service fees.
   
   They’ll claim that they help with marketing, sales, etc. In truth, their help will be worth little or nothing.
   
   Investors are supposed to help their startups for free! Charging money shows they’re not real investors.
   
2. “Sweat Equity”. Some “investors” will demand equity in exchange for services. These are the cousin of the service fees we covered in #1.
   
   These firms are usually dev shops disguised as investors. They’ll get you a little help from some offshore devs who probably aren’t competent. In exchange, they’ll take a fat slice of your company.
   
   Never make a deal like this. Investors invest actual cash, not “services”.
   
3. Syndication Fees. A venture firm promises to syndicate your deal to their network of wealthy investors. You’re sure to bring in millions!
   
   All they need is a small syndication fee.
   
   Run like hell. Syndication fees are one of the most blatant scams in startups.
   
   I’ve invested in numerous syndicate deals. The startup never pays a fee. We investors pay all the costs of setting up the legal structure.
   
4. Ridiculous Equity Grants. The venture studio the Reddit founder is joining wants cash, but many other venture studios take a giant equity slice instead.
   
   It’s common for a venture studio to take 40% of your company. This breaks your cap table and kills future financings.
   
   Some studios make ridiculous claims that they’re a “co-founder.”
   
   No venture firm is a co-founder of your company. And if YC only gets 7%, why should some no-name venture studio get 40%?
   
5. Due Diligence Fees. Every investor does due diligence before they invest in a startup. Only scammers try to charge for it.
   
   Never pay a due diligence fee. The VC should be bearing those costs.
   
   Not only should you not pay a due diligence fee, you shouldn’t accept capital from any firm that tries to charge you one. Dealing with them is going to be a nightmare.
   
   Wrap-Up

Whenever I hear of a so-called “investor” trying to scam a founder, it makes me extremely angry.

We’re supposed to be helping founders, not stealing money from them.

Inexperienced founders fall for these scams all the time. Scammers target founders with less access to capital: first-timers, folks outside the U.S., women, and minorities. 

Real investors don’t take money from you. We give you money.

Stay miles away from any “investor” running any of these scams.

You don’t need these jerks! There are real investors out there who want to help you.

It may take time, but you will find them.

More on tech: 

Five Things Founders Should Never Pay For

The Venture Studio Trap

Which Accelerators Are Worth Your Time? Here’s How to Find Out.

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