Who’s Your Daddy?
Spotting The Unscrupulous Investors That Linger in the Shadows and What To Do When Dad’s A Deadbeat
By Stacy A. Williams
StartupLounge.com seeks to pair qualified investors with qualified companies. Our screening process is pretty rugged but it is not bullet proof. If you ever have a question about the integrity of an investor or entrepreneur that you have met at a StartupLounge event, we want to know about it. Please feel free to contact us if you ever have any questions or concerns about anyone that you have met at one of our events. We are here to be part of the solution – not another piece of the problem.
Some of these “investors” are just self-serving and need the income. We call these small fish: job-seekers, consultants and fund-raisers. They are not really doing anything illegal, but they can waste your time and money because they don’t plan to invest their own money and may not work that hard to find someone else’s for you – no matter how much you pay them.
Then there are the big shot wannabes and pathological nut-jobs. Oftentimes they are the same person. Their payoff is more emotional than financial. They like the long talks on the phone or over beers, and they like the way that you gaze at them when you think they are going to make your dreams come true. It is very often the case that you will waste time, money and opportunity with these types of “investors” because these people are more lonely than rich and desperately need to feel admired and powerful. This type of “investor” will lead you along, make you feel really good about your abilities and then find some reason why the deal won’t work. The relationship generally sputters into oblivion when the “investor” no longer gets the emotional payoff that he or she so deeply craves.
Then there is the most dangerous type of “investor” to encounter – the millionaire imposter. This type of investor will most certainly display the characteristics of the big shot wannabe and the nut-job and will most certainly lack the integrity to go out and try to get a real job – like any self respecting job-seeker, consultant or fund-raiser. This type of “investor” is out to get your money and possibly your identity. The millionaire imposter oozes with wealth. He has a private plane, multiple mansions, carte blanche entrée into the Oval Office and an offshore bank account. And then he encounters you.
The world is his oyster and you are his pearl! He loves you. You have vision. He sees potential in you that you never knew existed. You are not like that little snot-nosed Harvard MBA that he had lunch with last week when he was on the coast of Spain. No – you are special and he is going to take time out of his busy life to groom you into the kind of CEO that will change the world. This goes on and on until you feel like you are on top of the world and then he asks for a check. He is not liquid right now. The wire transfer from his offshore account did not go through because it is Holy Week in Qatar. And the funds, by the way, have to be further directed through Minsk and then onto Ontario. Your prince will “roll that amount up in the deal when we sign it”. You are left feeling like you have to meet your mentor’s needs, because after all you are a savvy CEO and this is how things are done at this level. When you find out that the only thing getting rolled up in this deal is your money as your mentor stuffs it in his pocket, you feel violated and duped.
The sad thing is that most entrepreneurs just want the problem and the feelings to go away. They don’t want anyone to know that they fell for such a scam. They look back on their experiences with the “investor” and point out to themselves the red flags they should have seen all along. They beat themselves up because no entrepreneur worth his or her salt would ever have fallen for such a scam. They are afraid that people will talk about how stupid and gullible they are. The fact of the matter is that these imposters are stone-cold professionals who have left a trail of tears and smaller bank accounts far and wide. That snot-nosed MBA is probably crying into his Sangria much the same way you are into your beer.
What should you do when this happens to you? Talk about it! Start first with some trusted friends and work your way up to the authorities and the press if necessary. But for heaven’s sake, don’t keep your mouth shut. That is a sure fire way to ensure that some other honest, decent entrepreneur gets treated the same way – not to mention that your silence will rob you of the cathartic release from your self flagellating rage. Get it out and get it over with. Everyone gets “had” at least once in their lives and probably more than that. These experiences keep you humble, and ironically, make you the savvy entrepreneur that you need to be in order to change the world. Consider it a right of passage and don’t dwell on the past.
In general, qualified angel investors:
Now there are some exceptions. Some angel investors are so well known in their communities that they don’t think cards are necessary. This type of person has a lot of cronies who can vouch for his or her integrity. Beware of the glamorous investor who swoops in on his jet plane and never has cards. A qualified investor may ask you not to talk about his or her role in a deal for a while, but if the investor takes on the air of a CIA agent, point him in the direction of Moscow and tell him you heard there were some Commies over there.
Michael Blake offers some questions that you can ask your Prince Charming before you buy the dress for the ball.
Certain questions will help you detect the phonies:
Note from Scott: If you haven’t seen the presentation by Mike Blake that is referenced here, check out the slidecast we published recently.