April 27, 2006

“Warning Signs”

To prevent thieves from entering your house you take the necessary precautions. You lock doors and windows. When you go on vacation you leave a few lights on. You may even have a neighbor pick up your newspaper and mail so it appears that someone is home. All of these things are done to deter thieves so your house and possessions remain secure. Similarly, as an investor, there are precautions that should be followed when trying making a deal.

FundingUniverse.com is committed to providing a safe environment for investors and entrepreneurs. FundingUniverse.com will soon be available for use by only angels and angel groups that complete a detailed application process that includes interviews and signed documents confirming the legitimacy and intentions of each individual or group. In addition, we will continue to accept referrals from our already-approved members.

There are some things you need to look for before making a deal with an entrepreneur. The following tips should be helpful to new investors and will provide a review for more experienced investors. (Keep in mind that these tips are merely guides to help reveal red flags. There is a possibility that legitimate entrepreneurs may or may not follow some of these practices.)

Meet Face-to-Face

Meeting a potential entrepreneur face-to-face is critical. If you are about to invest several hundreds of thousands of dollars into a business idea, the entrepreneur should be eager to meet with you.

Complete Background Checks

Investors should obtain as much information about the entrepreneur as possible. Talking with the management team, acquaintances and the entrepreneur’s former employers can provide much needed information. Do whatever you need to do to feel completely confident about the entrepreneur’s credentials.

Beware of “guaranteed returns”

No business idea can guarantee returns. If an entrepreneur claims they can guarantee large profits without risk, then the deal should be critically analyzed. If the possibility for great returns exists, there is an equal possibility for significant loss.

Ensure Every Investment Deal in Writing

If an entrepreneur is legitimate they will not hesitate to put the terms of a deal in writing. Do not let lack of time or money serve as excuse to avoid written deals.

Don’t be Pressured to Move Quickly

Rarely are “once-in-a-lifetime” deals truly what they claim to be. You need to feel completely satisfied with your investments. This type of satisfaction rarely comes from making quick judgments about a business venture.

The brief list provided here is by no means complete. For further information on guarding against fraud please visit http://www.sec.gov/investor/pubs/affinity.htm




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