April 27, 2006

“Red Flags”


To prevent thieves from entering your house you take the necessary precautions. You lock doors and windows. When you go on vacation you may 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 entrepreneur you need to take necessary precautions while trying to obtain funding.

Scam artists, posing as legitimate investors, prey on an entrepreneur’s intense desire to find funding. FundingUniverse.com is committed to providing a safe environment for entrepreneurs and investors. 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.

While we are doing what we can to prevent fraudulent investors from entering the site, as an entrepreneur there are some things you need to watch for. (Keep in mind that these tips are merely guides to help reveal potential danger. There is a possibility that legitimate investors may or may not follow some of these practices.)

Meet Face-to-Face

Meeting a potential investor face-to-face is critical. If an investor is about to invest several hundreds of thousands of dollars into a business idea, the investor should be eager to meet with you. If not, beware.

No Money Up Front

Generally, investors will not ask for money up front, and they will not ask you to wire it to them. If you ever have questions or concerns ask the investor. If the investor is unwilling to answer to your satisfaction, then move cautiously before entering into an agreement.

Beware of Foreign Funding

The Sophisticated Nigerian 419 Scam is one such scam. Beware of any international “firm” which requires a “fee” to be sent through a wire transfer to a foreign bank. The FBI warns against this and other similar scams. Take a moment to familiarize yourself with other scams where you could be targeted. (http://www.fbi.gov/cyberinvest/escams.htm).

Guard Against Unaccredited Investors.

An accredited investor, according the U.S. Securities and Exchange Commission is one who:

· A bank, insurance company, registered investment company, business development company, or small business investment company;

· has an individual net worth of or joint net worth with spouse, that exceeds $1 million at the time of purchase

· a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year

· a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

(For additional information about accredited investors visit http://www.sec.gov/answers/accred.htm)




blog comments powered by Disqus