The
Maddening Machinations of Money Raising
By John A
Logan
It
started very quickly.
Within days of posting on
www.fundingpost.com,
one of the many websites created for entrepreneurs
to post summaries designed to draw the attention of
potential investors, an email inquiry from the
AngloAmerican Investment Group and one Anthony
Oppenheim. Mr. Oppenheim explained in his email that
from his Peachtree St. office in Atlanta, he
represented a consortium of private investors and
mostly European family trusts that were specifically
looking for investments in globally oriented
businesses like ours. They don’t charge any up front
fees to review business plans. They represent the
decision makers and can write checks for the right
investments, etc. Please call him to discuss the
venture.
Wow! Could we be that lucky? Although the email came
from a Comcast.net address, it’s not unheard of for
even big investors to use common email addresses. It
contained phone numbers and address information that
matched the Atlanta area and surely a huge
conglomerate like the Anglo American Investment
Group would clamp down quickly on any scam artists
brazen enough to openly use their brand. We were
pretty excited.
A
phone call to Mr. Oppenheim gave good reason to
believe they were for real. A professional demeanor,
the right questions asked and quick answers to any
concerns we had. They invest in people as much as
projects. We’d be invited down to Atlanta to meet
him and his associate Al Dubin (“D-U-B-I-N, yes
that’s the correct spelling” the conversation went
as I took notes) and review our business plan in
detail. FedEx 10 copies of the business plan before
coming down. A non-disclosure agreement was not a
problem. If they like what they see and hear we’ll
quickly see a Term Sheet. He’d send details about
the accommodations in Atlanta. “Awesome” my son
said.
Then things took a strange turn. The next email read
like a bad mass mail piece. They had reviewed our
business plan (funny…we hadn’t sent them yet) and
were prepared to invest the full amount. They
boasted about investments made in places like Shang
Hi (interesting spelling for Shanghai). A request
from us for references or contact with legitimate
past investments as our real due diligence kicked in
resulted in a email that asked us to supply more
information than even the government knows about us.
And unfortunately Mr. Dubin’s name had suddenly
changed to Dublin.
The jig was up.
One look at
www.ripoffreport.com
would have saved us some time since these characters
have been at it for a while and apparently the con
is to get entrepreneurs desperate for funding to
believe that Anglo American will gladly fund them if
the entrepreneur will pay the travel expenses of one
of their representatives for site visits and setting
up an offshore “escrow” account for safe keeping of
the funds until the deal is done. Upwards of
$40,000.
Entrepreneurs, like most creative people, are an odd
lot (I can say that being what’s called a “serial”
entrepreneur) and matching them and their projects
with them right Angel investors is a often a long,
incredibly frustrating and expensive process. Hundreds
of ideas die on the vine for lack of the life giving
flow of cash. And anyone who thinks the process is
easy, has had way too common an idea, asked for way
too little investment and probably given up way too
much equity.
The costs of raising capital to start any business
from scratch are mind-numbing. If you’re doing a
securities offering in even the most basic form, a
good attorney will be $200 per hour and up. And your
accounting firm better be top notch as well. Want a
Private Placement Memorandum? Better have a nice
house that you’re willing to mortgage to the hilt or
sell that brand new Lexus in your driveway that you
paid cash for last year. Wait a minute. You don’t
have either one of those? You spent every penny of
extra cash you had to developing your idea to the
business plan stage?
As
my cronies from the Great Lakes states say “You’re
S.O.L.” The days of investing in just a concept are
long gone.
Today it’s all about proven business models in the
form of an already operating business generating
some form of revenue from somewhere. The friends and
family round of funding completed and likely one or
two major investors from your own network of wealthy
folks is the sweet spot for attracting “early stage”
Angel investment. And some sectors are naturally
sweeter than others. Being situated near the
Research Triangle Park area of North Carolina, a
virtual incubator for bio-tech, life science and
high tech business ventures, trying to sell local
Angels on an idea for the formation of a new
insurance company, no matter how sexy the plan,
rarely even makes it into the evaluation process.
The Angels of Silicon Valley look mostly for ideas
in a different sector that needs no description.
In
fact, most Angel groups will readily identify those
business ideas that they’re interested in and those
they’re not. Unfortunately for me, my particular
venture falls into the categories of both a startup
and a highly uncommon business sector for Angel
investment. Add to that our need for $3 million in
funding and the combination scares most Angels
groups away, let alone individual investors. Three
million dollars starts to encroach on the
institution investment landscape controlled by
venture capitalists and investment bankers. Five
million dollars is the limit for most Regulation D
offerings without getting into investor
sophistication requirements. Get into that arena and
be prepared to invest in the high five figures just
to get started looking for more money, with no
guarantee. Who are these entrepreneurs that have
that in their back pocket? No one just getting
started, that’s for sure.
So
what are the alternatives when there are no rich
Uncles or neighbors that just won the lottery and
don’t know where to put their money? I can only
speak from experience in that finding one or two
true believers that have a network of accredited
investor type clients or friends is your best bet.
Six degrees of separation no longer applies thanks
to the internet. I’ll guarantee you know someone who
knows someone who knows a likely investor. The trick
is getting the word out without alerting every
would-be competitor, idea stealing piracy gang or
scam artist that will nickel and dime you to death.
Truth be told, that’s a high wire act of its own.
There are literally hundreds of websites advertising
Angel groups or supposedly acting as a clearing
house for Angels to search for investments they’re
interested in. You can quickly spend tens of
thousands of dollars in submission fees or retainers
for individuals or groups that will claim to have a
professional team that will “evaluate” or screen
your business plan before they allow you access to
investors even online. In reality many of these
websites are simply an introduction to someone that
will drain your bank account as they offer to take
you to the next stage or introduce you to “real”
investors.
Even some fairly well known Angel groups claim a
qualified screening process that is really a single
individual that, unless your business plan happens
to be that person’s flavor of the month, often even
the best ideas don’t make it through to the real
investors’ eyes. So ask lots of questions before you
pay any fees and understand exactly what you get for
your money. Talk to entrepreneurs they claim to have
funded and find out how their process really worked.
There are several directories of legitimate Angel
groups and investment firms. One that I found fairly
comprehensive is
www.privateequity.com.
And there are software applications that are
available to let you slice and dice who you look up
by stage or sector or geography or any number of
other demographics.
Posting any venture information online is dicey if
you’re not familiar with securities laws. Have a
good securities attorney review anything you post to
ensure you don’t step over the line of selling
securities without a license. Don’t be telling
people they can expect an average of 90% annual
return on investment, even if it’s true. Unless you
like orange jumpsuits, of course. Even seemingly
innocuous language sometimes pushes the boundaries
of information to advertisement.
And then of course we come back to the interesting
inquiries you’ll get by posting information about
your business online. From the Malaysian doctor who
invites you to fly to Kuala Lumpur (at your own
expense) to seal the deal without ever having so
much as spoken to you on the phone. To Vernon Jones
who has $6 million given to him by a woman in Libya
that happens to be stored right now in the Bank of
Ghana, but calls from a rented house with a phone
number owned by someone named Neomia Green. Or the
gentleman from Thailand that was surprised to learn
that I actually called the company in Australia
whose email address he was using illegally, and
still claimed I judged him too fast. It’s always
amazing to me that these con men assume that their
marks don’t know how to use Google.
Or
that Anglo American bunch, who by any other name,
still reeks of a scam.
The sad part is that apparently the authorities
don’t have the man power enough to snare these low
level n’er do wells since we continue to get emails
from these crooks despite calls and emails to
various law enforcement agencies.
The bottom line is that it really does take money to
make money, even if it’s not your own. The economy
is headed in the right direction for entrepreneurs
of all sorts, but understand the process and cost of
raising outside capital before you get into it. Find
yourself a mentor than has been through the entire
process. Ask a lot of questions and learn from their
mistakes.
After all, the wheel has already been invented.
______________________________________________________________________
About the Author: John
Logan is the President and CEO of Business Benefits
Solutions Network. He is also Chairman and CEO of
SafeGuard Guaranty Corporation, a Nevis based
insurance company. Mr. Logan welcomes email from
readers at
info@businessbenefitssolutions.net
Provided by Business Benefits
Solutions Network © 2006 |
