Let’s talk honestly about shady startup investments

How to separate shady investment opportunities from real ones is what the author suggests in this note and gives the clue to discover them.

“Is this investor real?”

I get asked that question often. Definitely more than it should. Because my answer is always the same and it’s always some form of “I don’t know.”

Everyone wants the dream to happen to them. And every entrepreneur – I don’t care who they are or how long they’ve been at it – longs for that day when unsolicited investor interest comes knocking and suddenly a game-changing idea becomes a funded reality. .

Of course, that happens in real life, very rarely. But it seems to happen often. All it takes is a quick one-day read of TechCrunch’s Twitter feed to make it seem like anyone can attract a little interest from Sand Hill Road and turn it into a few million dollars of runway.

But what happens more often is just a mirage. Shady investment opportunities can come in all shapes and sizes, and can hit any type of company at any time.

Lately, they are becoming more sophisticated. So much so that sometimes even I can’t tell the wild goose opportunities from the honest ones.

But you can. Here’s how to do it.

Look. You don’t have time to chase investments. Even real opportunities, backed by accredited investors, require tons of time and mental energy to cross the finish line.

It’s time and energy not spent building a better product, building a larger market, or maintaining an edge over your inevitable competition.

In this week’s edition of Teaching Startup (#85), I answered a broad question about finding investors and the right way to start raising funds, covering everything from tracking tools to cap tables to advice about relationships.

In the response, I told a quick anecdote about the fact that I had just received an investment opportunity for Teaching Startup itself (and since writing that response, another completely different opportunity has appeared in my inbox). And I couldn’t tell, even after 15 (wasted) minutes, whether these meeting requests were real or not.

I know what scams are like. I know what programs that present themselves as VC are like and that they are not exactly scams. But I also know intelligent entrepreneurs who have fallen for scams and others who have wasted months chasing investors who ended up not having the resources they said they had.

The trend I’m seeing lately – marked by all the emails that have crossed my radar in recent months – is something new.

What I’m seeing now makes me think that an outbound marketing machine is being built to attract all these new post-pandemic startups that are emerging in the last year. I’m fighting as hard as I can to get real information to newcomers, but it’s not easy.

Honesty takes time. Scams require a couple of clicks.

One of the common signs I’m seeing is the emphasis on the word “partnership.” Now, I’ve heard the term “partnership” used by big-name investors to describe how they want to paint the investment relationship, but it goes a long way in this message. It makes me think that what is being presented is more the journey to get the financing than the financing.

The people sending the emails are not general partners or associates, they are vice presidents, development executives, analysts, or some other vague title that sounds like it might come with check-signing authority, but could probably be denied in a court of law. .

There is almost always some hint (usually not directly spoken) of a show. It could be something to do with incubation, connections, networking, presentations, coaching, whatever, just something to end up going into my portfolio. But like I said, it’s hinted at, not direct.

This is your best defense

Like 98% of the time, I think incoming investment interest is bad news, but what about that other 2%, right? How can you protect yourself without throwing out the proverbial investment baby with the dirty bathwater?

Start asking questions. You can probably achieve maximum effectiveness by asking yourself this question first:

Because I?

What exactly is it about my company that makes it so attractive to them and their team?

And that’s it. If you send them that question and a quick thank you, a couple of things can happen

You’ll never get a response because it’s a volume game and they’ll just move on to the next jerk…er, businessman.

They will tell you something that has nothing to do with what your positioning and messages say to the world, which means they have no idea what you do.

You will receive feedback about your startup.

All that is good. They save you time and can even offer you a window into your business that you weren’t already looking through.

If you’re still having trouble figuring out its legitimacy, ask yourself these two questions below:

What is your investment term?

What was your most recent investment?

You’re looking for clues about his process and recent history. This should help scare away pseudo-incubators and that strange bunch of people who like to play angels but don’t write checks.

Look, there’s a reason they call that show Shark Tank (and please don’t take any business advice from Shark Tank). Startup investing is a cutthroat business that is not prone to uncovering hidden gems.

But every scam requires two parties to carry it out: The person who makes up the lies and the person who wants those lies to be true.

Make sure you get to the truth before agreeing to the meeting.