Scam artists, posing as legitimate investors, often prey on an entrepreneur’s fund-raising efforts. This is a time when you’re at your most vulnerable, and when you are willing to take the first deal that may cross your desk. While Invstor.com is doing all we can to prevent fraudulent investors from entering the site, there are some things you need to watch for. (Keep in mind these tips are merely guides to help reveal potential danger. There is a possibility legitimate investors may or may not follow some of these practices.) With the following tips, you can better prepare yourself to avoid scamming.
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 accredited investors visit http://www.sec.gov/answers/accred.htm)