The Mentors And Investors Who Are Out To Screw You

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The Mentors And Investors Who Are Out To Screw You

One of the painful truths about the startup sector is that it is full of spivs, crooks, and time-wasters. During your career at a startup you are bound to come across some of these shady characters. We have some advice on how you can protect yourself.

Startups can be exciting places to work and can offer great rewards to those who get in at the right time. Unsurprisingly, this attracts a toxic mix of chancers and freeloaders looking for a get rich quick opportunity, along with those who are attracted by the supposed glamour and the excuse to do some schmoozing. This latter group have an awful lot to say but rarely follow through on their promises and end up wasting people’s time.

Daylight robbery

There is a well-known Australian venture capitalist …. Actually he isn’t a true VC but he certainly brandishes himself that way, who parades around as though he’s got very deep pockets but is really just in the business of stealing startups from founders. He either doesn’t deliver at all, or on the rare occasions that money is produced, it’s more than likely to be hot, potentially from people looking to launder money in the startup sector.

And he’s not the only one I’ve come across. Many people in the startup scene describe themselves as VCs when in fact they are just in the game of introducing startups to real investors. They do this because they are too corrupt to be able to gain the required licence to run an investment firm themselves, and hope that by making a successful introduction they will be able to earn a big commission for minimal work. For the inexperienced, it can sometimes be hard to tell that these people aren’t the real deal, particularly when you see them on the front page of a newspaper hob-nobbing with the Prime Minister.

These imposter VCs ask founders to sign an exclusive contract which includes an advisor agreement. This usually involves them creaming off up to 5% per annum in company equity without explicitly saying what they will do. Once the agreement has been signed, the startup is trapped as other investors won’t want to touch them. Startups may even struggle to get the initial investment once a VC realizes they have got to be involved with the introducer and give him a chunk of their cash.

Protection racket

As mentioned above, it is not unknown for criminals to attempt to launder money via startups. Founders and compliance teams may not have enough experience to do proper due diligence on where the money has come from, or they are so desperate that they turn a blind eye.

These people not only sniff around established startups, but also attach themselves to those they view as potential founders. They act as mentors and advisors hoping that when someone is ready to launch a new business they will be part of their trusted inner circle.

It is tricky space to navigate and there are some sad examples of founders having to remortgage their homes to bail out a business that has been exploited by these parasites. At the moment there is little regulation to protect startups and founders may be unwilling to disclose what is going on.

If you work in the compliance, finance, or investor relations department of a startup and you see something that you feel uncomfortable with do not be afraid to raise your concerns. You should be able find someone who is willing to listen to you and if you don’t not only could it be the downfall of the business, but also your career.

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