Have you ever been approached by an investor who seemed too good to be true? Maybe they were offering more money than you were asking for, or they were promising to help with things you can’t do yourself. Awareness of these fake investors is essential because they can trick money right out of your startup. Here’s a look at how they operate and some tips on avoiding them.
1) Asking for too Much Equity
All fake investors want more than their piece of cake; they ask for too much equity in your company. They may say they’re investing a large sum of money, but they’re just eyeing a more significant piece of the pie. Know how much equity you’re comfortable giving up before you even start talking to investors.
2) Promising More than they can Deliver
Fake investors may also promise more than they can deliver. They might say that they have connections that can help you get funding or that they’ll be able to get your product into big retailers. If it sounds too good to be true, it probably is. Scamming investors often suggest fake programs where they enlist startups and may ask you for upfront payments or a sum.
3) Making False Claims about Their Experience
Capitalism is a ruthless game! Investors who have been in the game and have experience know this. They also know that many people haven’t been in the game and are just trying to make a quick buck. Fake investors often make false claims about their experience or exaggerate their credentials to gain your trust.
4) Pushing for Quick Decisions
Investors understand that startup decisions are complicated and often take time. If an investor pressuring you to make a decision quickly, it’s a red flag. This is especially true if the investor is asking you to sign a contract before you’ve had a chance to read it thoroughly or consult with a lawyer.
Most venture capitalists urge startups to yield revenue and pursue growth they cannot sustain. To keep the money flowing, startup founders follow their orders to hit a cash bump and fail to scale.
How to Avoid Falling Prey to These Tricks?
The key is due diligence. You should always:
- Research the person or organization you’re thinking of working with.
- Check out their track record.
- Get everything in writing.
- Don’t sign anything you don’t understand or agree with.
- Seek advice from people you trust before making any decisions.
If something sounds too good to be true, it probably is. Be wary of anyone who seems more interested in your money than in helping you grow your business. If you do your homework and use common sense, you can avoid becoming the victim of a scammer masquerading as an investor.
While there are many helpful, legitimate investors out there, it’s essential to be aware of the warning signs of a fake investor. 7 Figures Funding is here to help you navigate the investment world and raise capital safely and risk-free for your startup in Scottsdale, AZ. Contact us today to get started!