How to recognize fake Investors
BY: ANA BARJASIC
The famous expression says – cash is king. This has a particular side effect in the European early stage ecosystem hierarchy where investors enjoy an almost aristocratic treatment. There are VIP passes, exclusive networking dinners, fantastic and carefully selected companies, travel costs covered, even daily fees are paid, everything just to get an investor to attend an event.
Once the investor confirms the attendance, there is plenty of social media announcements, newsletters, invitations, even press, while the overwhelmed fans – fundraising companies – are waiting for their rockstar – investor to reveal what companies should do to raise money from investors.
Everyone is happy – organisers because they are matching numbers and attracting interesting participants, investors because they are treated like royalty, and finally entrepreneurs because they are attending a great event with a possibility of getting an investment.
There is one detail that sometimes gets neglected in this rat race– how do we know the investor is a real investor?
Anyone who has ever fundraised knows that there are too many people nowadays that claim to be investors. The reason is obvious, the more convincing they are as investors, the more investor benefits they can enjoy. And the reason why this works out is because there is little quality assurance in the market, not nearly enough knowledge about the topic, and a significant number of naïve people. However, this doesn’t mean that people who claim to be investors are entirely disconnected from the investment world.
When fundraising, it is in entrepreneur’s interest to find an active and professional investor, and not only be interested in money.
There are several types of “fake investors”, such as employees of investment related entities or their representatives (both private and public), investment related consultants, people who invest out of curiosity or as a hobby once or twice, and clearly people who say that they are investors or their representatives but there is no information about them or the information cannot be linked to them to confirm their claims.
If you are not sure if the person is a real investor or not, there is a few questions you can ask to make things clearer, like:
– What is the sector you usually invest in?
– How many companies did you invest in the last two years?
– What is your most successful investment so far?
– What is your biggest investment failure so far?
– How much money do you usually invest per company?
– Do you invest alone or collaborate with other investors?
– Can you send me more information about the companies in your portfolio to see if there are any synergies?
There is no reason not to ask your potential investor about their track record. The more generic and ambiguous the responses you get are, the higher the chance you might be dealing with a fake investor.
