Surfing the Internet for investors? Watch out for sharks. Sure, the Net can be an efficient tool for finding legitimate investors, but online scams abound. So do your homework. No sensible investor would risk putting money into any venture before researching the business and its owner, so why not investigate them? Here's what you can-and should-do.
1. Thoroughly check out any Web site or investor before signing anything, accepting any funding or paying any fees. Get verifiable answers to such questions as:
- Who are the principals behind the Web site?
- What investments have they arranged and for whom?
- What are the investors' names, locations and backgrounds?
- What have they invested in?
- Are the investors familiar with your type of business?
2. Contact the investors' bankers, and get feedback from other businesses they've financed. Before proceeding further, ask to meet with investors personally. If they refuse, run from the deal.
3. Even if you're using a matchmaking site or a money broker, research potential investors. Matchmakers generally charge a listing fee; money brokers usually get a finder's fee and/or equity in your company in return for successfully arranging funding. Some brokers ask for thousands of dollars, promising venture capital, angel investments, bank credit lines or expedited SBA loans. Do not pay upfront fees to money brokers, and be leery of any promises. Get the names of other clients, make certain they are legitimate, and call them.
4. Check with Dun & Bradstreet, the Better Business Bureau and your state attorney general's office to get background information and to find out if any complaints have been filed against the broker. Ensure that the broker has a telephone listing (preferably in the Yellow Pages) and a physical address. Visit the location, and talk to the building owner about the broker.
5. Finally, have the investor or broker provide a written contract with all the details, including what you can expect and what it will cost you. Have your lawyer study all documents before you sign. As tempting as an offer may be, don't be rushed into any deal.
Paul DeCeglie is a former staff reporter for Journal of Commerce and American Banker.