Real Investor or Con Artist?
I’ve been raising capital for my own companies and assisting entrepreneurs with raising capital for close to 20 years. Now, I'm the CEO of an entrepreneurial training company that educates and prepares entrepreneurs and then introduces them to investors for funding once they’re fully prepared (http://www.MaverickEntrepreneurs.com). Honestly, I thought I had seen it all. But I’m continually surprised by how cunning these investor con artists are and I’ve finally just had enough! Time and time again, entrepreneurs come to me with horror stories about how they’ve been scammed out of their last dimes. My heart breaks for them because I’ve had it happen to me (and I've got the battle scars to prove it)! These out-right thieves need to be put on notice. Someone needs to stand up for the entrepreneur! The investment industry needs a 'Good-House Keeping Seal' for Investors. This pandemic is killing off our precious future entrepreneurs. The industry is simply plagued with con artists in five hundred dollar suites or fancy websites portraying themselves as a real investor and it’s just WRONG!
I agree with most investors that 90% or more of entrepreneurs are completely unprepared to properly present their company to investors. Thus the reason I created my company, Maverick Entrepreneurs. Team Maverick (my team of experts and I) educate and prepare entrepreneurs who are raising capital. We teach a step-by-step process that includes: (1) a comprehensive training program and (2) we give them the tools, via a web platform, that they need for support during this funding process. Then when they’re full prepared, we directly introduce our entrepreneurs to our network of 1,000’s of REAL accredited investors.
There are three main types of predators to beware of:
The Finder/Broker Con Artist
The Internet Con Artist
The Lender Con Artist
Prepare First – Then the Con Artist Has No Legs To Stand On Let me emphasize one more time: when I say Maverick educates and prepares entrepreneurs – I’m not talking about a little pep-talk or two pages of hints on a website page. Maverick’s training starts with 3-days of intensive Marine boot camp-like training, complete with a 360-page training Guide, a 250-page workbook, all the electronic templates entrepreneurs need to prepare and a real investor pitch session (Shark Tank-like). We then work with our entrepreneurs weekly for up to a year to properly prepare them for their capital-raising battle and help the pitch and close their deals. Maverick’s entrepreneurs get funded because we vette-out their businesses and teach them how to prepare correctly, or they give up in the training process. We’ve designed our program as a self-selection process for all entrepreneurs. The preparation stage weeds out the weak entrepreneurs. Darwinism at its best - only the strong entrepreneurs will survive and endure (think- Navy SEAL training). But, the ones that survive our training, our entrepreneurs – Maverick Entrepreneurs, have ALL of their due diligence done in advance so no investor will be able to say they’re not prepared. This preparation phase is mandatory before our entrepreneurs even get to our investor database! Do Your Due Diligence – But Remember: It’s A Two-Way Street So let’s talk about the infestation in our industry of con artists and thieves stealing from entrepreneurs. With all this craziness in the investment industry, why is it that when an entrepreneur asks an investor to prove that they have the funds to invest, they’re offended! Are you kidding me?? Ladies and Gentlemen investors, please remember that due diligence is a two-way street! You should already know how contaminated this industry is with wolves in sheep clothing! It’s very simple: investors need to prove to the entrepreneur that they have the money to invest, just as much as the entrepreneur needs to prove they have a viable deal for funding.
Predator #1: Watch Out for Disguised Finders Without a Broker/Dealer License Entrepreneurs - if no one has ever explained the infrastructure of the investment industry to you before - here's a quick lesson: I'm going to give you a simple example to explain this specific type of investor predator. Think of Broker/Dealers ("B/D's") like they are the investment industry's "real estate agents." They are licensed by the SEC (Securities Exchange Commission) to sell securities (another name for equity or stock). Because they have this specific license, they know they must comply with very specific rules and regulations that are policed by the SEC to protect from fraudulent misrepresentation and all those bad things that you hear about on Wall Street. BD's must adhere to these rules - or they do not get to pass "Go" and they go directly to jail. Now, like a real estate agent, B/D's can work for the "buyer" or "seller" of the security to facilitate the transaction (they're sales people - working on a commission). They earn a very healthy "commission" for helping the investor find great deals to invest in, OR the entrepreneur to find an investor to buy equity in their company (invest in them).
Now, with that said there are the B/Ds who like to disguise themselves as investors when they’re not, or there are B/D's who try to charge entrepreneurs upfront due diligence fees to review or "prepare" your deal. By nature, the B/D should be working on 100% commission or "best effort" (just like a real estate agent). Imagine if you were going to sell your house because you needed the money, but when you called the real estate agent to list it for you, they said "it'll cost you $25K (K=thousand) to list your property." No Way! It's just wrong. If the B/D doesn't think they can raise the capital for your company with what you provide them in your due diligence kit (all your investment documents - i.e., your business plan, etc.) - don't fall for the con that they need to hire attorneys, etc. to do this for you. Simply ask them: "what do you need and I'll get my attorney to do it for you." They will suddenly back off and likely disappear. Would you pay a real estate agent an upfront fee to list your house? NO! Now, if you have all your investment documentation done well - then the B/D will jump at the deal because they know they can close it quickly and make big money with little effort. If they have some cost of preparing your information for investors - well, they can get paid at closing for that cost (just like a real estate agent).
A sub-set of this predator is the "unlicensed finder" or "intermediary" person (middleman) that happens to know a rich person. Think of this person like they're someone off the street walking around claiming they're a real estate agent - simply because they know someone looking to buy a house. They want a commission (and often an upfront fee for making the introduction) - BUT - they don't have a license to do this. I’ve been consulting with entrepreneurs for over a decade now and raising capital for more than two decades. I’ve help my entrepreneurs bring in term sheets in excess of $200M+. But, because I know the SEC regulations on Finder Fees, I have never collected a success fee. Why would I not go get my SEC B/D license so I could collect this commission? Because (based on my very astute legal counsel's advice) I advise and counsel entrepreneurs on what to do – and if I had an SEC license, I could be held liable for any deals that went south. It is for this very reason that there has been very little help out there for the entrepreneurial community. So, I’ve followed the rules. I’ve only worked for a consultant fee or retainer. If I had made in the past a success fee from of all the deals I helped get funded – trust me I’d be a very wealthy woman. But it seems, I’m one of the few in the industry that actually does follows these SEC rules.
Entrepreneurs - please understand that if you pay out a finder fee to an unlicensed person (a finder or middleman), you are jeopardizing yourself and your company in the future. If you try to do an IPO (initial public offering - it's when a company goes from being privately held to being a publicly traded company), this little problem will likely become a very big one! Now, there are loop holes that people can play and ways to structure this correctly but it must be done by a highly skilled SEC attorney. The new JOBS act has made this regulatory area even more unclear. I’m sure an SEC attorney can enlighten us all on the new guidelines on this subject more than I can. But, I do know that to obtain a "broker’s fee" or as it’s called a "Success Fee" – there are certain SEC guidelines that MUST be followed.
Predator #2: The Internet Scammer These dark-net predators disguise themselves as real investors using the internet as their weapon. They seek out entrepreneurs desperate to find an investor for their dream. Often they have well-established fancy websites (even to the point of having translated versions, fake banks and fake documentation, pictures of real people - who aren't them, etc.). They claim they want to do the deal with the entrepreneur but they must first meet them - or they must first pay something (like a bond or something) to get to the next level. Of course, they say the money man (decision maker) is unavailable or some ruse. It's very well done and often requires the very best crime-fighting internet white-hatters (internet guru's who can research where these scum-bags are really hiding) to find out who these guys are. Beware - these con artist are the latest-greatest breed of predator and they're lurking everywhere! They are very good at portraying themselves as real investors - so do your research FIRST!
Predator #3: The Dreaded “Due Diligence Fees” Con Artists And then, my favorite of all bad guys, the investor (typically a Debt/Lender) firm that throws in the ridiculous due diligence fees at the end of the deal. They court you (the entrepreneur) for a few months, get your hopes all up that you have a funding source, and then hit you with "the fees." Then suddenly, after you pay them their unwarranted fees, they can’t do the deal because of some ridiculous issue!
It’s fundamentally WRONG when an entrepreneur comes to an investor looking for money, for the investor to then ask the entrepreneur for money to read their due diligence. Oh, trust me - I’ve heard every business model excuse on this argument from these so-called investors: “but that’s how our business model works…” You may have naïve entrepreneurs falling for this con, but that just tells me you’re out scamming fees from every entrepreneur you can get to give you money, and fund only a few (if you fund any at all). If you’re a real investor with real money to invest or lend, then logic would dictate that you should be able to afford to hire an analyst or attorney to review the entrepreneur’s documentation (due diligence packet) for you! Why should the entrepreneur pay for the investor’s cost of operations? Investors, ask for and review what you want in advance from the entrepreneur, and then and only then, make your business decision as to whether or not to risk the cost of these third-party professionals’ time or not (but that's the investor's cost of doing business - NOT the entrepreneur's!). Most Entrepreneurs are Broke – That’s Why they’re Seeking Funding! Let’s be realistic everyone - most entrepreneurs are broke! That’s why they’re coming to the investor to raise capital! And all of you con artist investors out there; you better beware because there’s going to be a new Sheriff in town! I’ve just had enough and I’m going make it one of my missions in life to clean up this problem and call out all you bad guys! This industry has gone on way too long with no real police for the small white-collar crimes that are happening everyday to entrepreneurs. These investor impostures are taking $5K-$100K from 1,000’s of desperate entrepreneurs all the time, promising them funding and then either disappearing or coming up with some ridiculous excuse to not close the deal. It’s just WRONG!
In summary - the best rules of thumb for any entrepreneur are the following: (1) never pay upfront fees unless the person/company is providing a real service to you that is outside of the commission they will earn for a deal closing; (2) prepare thoroughly in advance so you're totally ready to close a deal; and (3) do your due diligence on the investor! If the deal is going through a B/D, yes - you should pay "a commission," but at the closing of the deal (like a real estate agent) - not before! B/D's services are well worth the money! Just be aware - raising capital is a real-life battlefield, and unfortunately, there are bad guys out there (think of these bad guys like they're terrorist) lurking everywhere.
If you’re an investor or entrepreneur and want to learn more about Maverick Entrepreneurs (we help real deals find real investors) – please visit our website at http://www.MaverickEntrepreneurs.com. Real investors only please!