Fundraising scams are real, scary and dangerous. After raising £20,000,000 in the last 12 months with over 60 companies, here's what to look out for.
I always go down the rabbit hole, even when my spider sense is tingling, and often the most reputable-looking investors or firms are in fact scams designed to extract your personal identification, along with bank account information and company materials.
If you are ever unsure about something, just don't take the risk. My experience over 100 raises is that it is never worth it and it never pays off. If it sounds too good to be true, it is.
Fake funds
The scam is simple. They set up a fake investment company and use it to extract personal information and potential fees. In order to complete a funding amount, you are required to pay the transaction fees in advance. Even the best due diligence in the world would be tricked by this.
I have seen a great example. I know its main contact is fake, because if you run a reverse image search on his photo you will see where it really comes from. Look at the website: they even have fake leadership profiles which clone the profiles of successful Middle Eastern business leaders. They have added fake accounts and licences from Saudi Arabia. The complexity of this is frightening.
The legal documents you are sent will be unbelievable in quality. It's practically impossible to find errors. They communicate at frequencies that mirror real funds. It is wild.
Fake representatives of high-net-worth investors
This is a very common scam. You will be contacted by a representative of a high-net-worth family or family office, and they will explain that they have the right to issue investment on behalf of XYZ.
The scam is simple. They want to "keep good faith with their investor", so they need to manage the commission transaction privately. This allows them to create a system where you pay the commission based on a fake proof of transfer, and they disappear into the night.
They often want to meet face to face, and I know entrepreneurs who have flown overseas for meetings like this.
Three simple rules to stay safe
- Never send passport or bank account information.
- Never travel abroad for meetings.
- Ask for references, or to see a portfolio.
If in doubt, walk away. It is never worth the risk.