We’ve all had the emails. Either a Nigerian prince wants to send you money or a British relative has died and willed their fortune to you. All you need to do is send a small amount of money as a sign of good faith and your fortune will be delivered in a few days. It doesn’t take too much brainpower to know that these are scams. In the world of venture financing, these scams exist and are quite a bit more sophisticated. This blog is about how criminals try to separate you from your hard-earned money and what you can do to protect yourself.
Springfield was talked into a monorail by Lyle Lanley. Scammers bank on you not being any smarter than Homer Simpson.
Entrepreneurs can be especially vulnerable to these criminals because they lack fundraising experience. The criminals take advantage of entrepreneur intelligence in other areas. One scam had a relatively low fee (about $16,000) for an incredible amount of financing ($100 million). An entrepreneur versed in statistics could determine that it only has to have a 0.016% chance of being real to be worth the gamble. This is exactly what the criminal wants you to think. Plus, once you write the first cheque, expect delays and other fees to pop up.
These criminals hate when you get advice from professionals. When confronted with this, these scammers start talking about “state-of-the-art” financing techniques and barrage you with made up buzzwords. By doing this they are trying to discredit your expert. They want you to believe them instead of your expert. When I sat in on one of these conference calls, the scammer used an analogy of his high net worth mystery benefactor was like my rich uncle, lending me money so I could buy a car. His analogy broke down when I asked what was in it for the rich uncle.
The following are some tactics used by these scammers:
- These schemes rely on getting you into a hasty decision. They will have very tight timelines, forcing you to a decision before you have thought about it.
- They will try to make you feel stupid for doubting them. They use terms like “I don’t want you to miss out on this opportunity of a lifetime.”
- They don’t have any information available, like a client list, a functioning website (they might have one “under construction”), or an office with a street address.
- They don’t state how they get paid or how the other parties in the transaction benefit.
- They focus on the one person in the organization that can authorize payment, yet doesn’t have the experience in detecting the scam.
- If they feel they are close to closing a deal, they will barrage you with phone calls and emails.
- They will never meet with you in person.
If a shady character using these techniques has approached you, don’t agree to pay them for anything. Ask for a client list. If you suspect criminal activity, report them to law enforcement. The RCMP and FBI websites have more tips on detecting scams and information on how to report them. Just don’t let them pressure you into a hasty decision.