Four Types of Investors Who Are Not Really Investors
Often, I encounter an email with a subject line such as, “An investor is interested in your company!” or “Wow! Can we talk about your product?” If your morale is low from receiving too many “No’s” from potential leads, and your bank balance is dipping into the “E” zone of the gauge, these emails can seem tempting.
I’ve realized now that most of these emails were not about an investment deal at all, but were actually asking me for my money. After experiencing and interacting with many of these, I want to share some things I’ve learned to save you some grief.
These “come-on’s” fall into four major categories:
One: Paid Investor Finders
These are very similar to Advance Investor Fraud in approach and I get a lot of these requests. They will offer exciting news such as, “We have an investor interested in your business.” You might even get some lengthy specifics that sound relevant to your particular products or services. Often, they will say that the people who are interested are from outside your country.
If you call back, they will not even acknowledge such an investor exists. Instead, they will offer to find you one to the tune of $2500 up front or more.
Two: Overseas Developing Firm Disguised as an Investor
This is a bait and switch tactic from an overseas developer outfit. You will get an email stating something like, “We are very impressed with your company and would like to talk to you about investment.” As the conversation progresses, the message becomes, “You are too early to invest, but instead of us charging you $60/hr., we will put in $30/hr. and you pay us the other $30.”
Three: TV Product Placement Producers
You will get a call or email telling you how impressed they are with your innovation and that they want to put your product in a feature they are working on for a cable TV channel. And the channels are usually well-known ones. The only problem is that at the end of the conversation they will ask you to pay for the production costs in the upwards of the 50K range or more. If you can afford this cost, it might be great for you, but for most of us, this isn’t a good deal. This makes me wonder how much of the business stuff you see on cable channels is actually paid product placement.
Four: Innovator Competitions and Conferences
Granted, there are many legitimate investor pitch conferences that will cost you, but my email box is full of other innovation conferences and requests for participation in pitch sessions or hacking competitions.
Some of the telltale signs include:
- Overly aggressive sales tactics. Some people just won’t give up. If they sound desperate, I would assume they are desperate for a reason. Most legitimate conferences are high in demand and they will first evaluate whether you can even show or pitch, and most likely will reject your proposal in the end.
- Some organizations require a hefty annual membership or equity with the conference fee as well as a pitch fee. This is a red flag to me.
You may have noticed that most of these tactics have these common approaches:
- They have a good number of well targeted boilerplate that praise the product or services you are offering. Naturally, you will be excited.
- They use overly aggressive and urgency tactics (aka the LED countdown) with limited meeting time slots and limited time.
- They sound very interested in investing or say they are investors.
- Usually there is a switch in the middle of the conversation and this results in your needing to pay. A real investor will not ask you for money up front.
If people are genuinely interested in you, they will have already spent the time researching your product or services. If they seem to actually know more about your business than you do and have additional ideas or a creative perspective of what you do, then there may be a real chance there.
I am a co-founder and CEO of WinguMD.com, located in the San Francisco Bay Area. I am an avid coder and have worked on building the world’s first electron beam CT and Ultrasound scanners, and have helped create a number of medical imaging startups. In this phase of my life, I have been building a mobile medical collaboration platform for faster, easier and better care coordination directly from mobile devices. In my spare time, I love to surf and also play piano jazz with my wife Wendy, a vocalist and writer. We are walking distance from the ocean and share our home with our feline roommate Mocha.