On June 18, 2021, a missed call from a UK number appeared on our business WhatsApp, reserved strictly for customer service interactions. We promptly texted back, offering our assistance.
A swift response came from a man who introduced himself as Mr. H, expressing an interest in discussing potential investments in our company. This set the stage for a telephonic conversation that appeared genuine and professional. He enquired about our business model, operation, and growth strategy, subsequently asking for our pitch deck. All seemed normal.
Their website had links to a company house register, showing their existence since 2012. They offered a deal worth 10MM with a valuation of 50MM, asking to expedite the process due to a client's looming tax issue. Everything seemed above board, but I insisted on an in-person meeting before proceeding further.
The Barcelona Encounter
I flew to Barcelona to meet Mr. J, the financial director, and his assistant. The meeting began promisingly, with insightful questions about my vision for the company and its exit strategy.
However, the conversation took a weird turn when they began discussing Bitcoin incessantly, showing little interest in our core business. This was peculiar because our company wasn't involved in Bitcoin, a fact we made clear.
My alarm bells started ringing when they discussed their "management fee," insisting it be paid in cash or Bitcoin. This was concerning, especially since Bitcoin was crashing at the time.
The Proposal
They presented a peculiar proposal: I would have to bring 500K in Swiss francs, either in cash to Barcelona or via Bitcoin. Once done, they promised to return 1MM in cash in EUR, followed by the rest of the investment a week later. They also requested another 500K as a management fee in the second year.
They wanted the management fee upfront as a "sign of trust," a major red flag. I was outraged at the audacity of the proposal. Despite our disagreement, they contacted me the next day with an alternative. They proposed that I bring the 500K to a hotel room, where it would be counted. Once they had transferred 10MM to my account, I was to hand over the 500K in cash. This proposal was straight out of a Hollywood thriller.
Turning the Tables
After researching about Advance Fee Fraud on a US government website and the UK's scam hotline, I decided to play their game. I offered to send them 1MM to the business account; once the funds arrived, I'd transfer 500K in Bitcoin as a management fee. Predictably, they refused since this would've disrupted their scamming plot.
The deal was called off, with them claiming that I had lost a 10MM deal. Ironically, what I didn't lose was my hard-earned 500K.
Lessons Learnt
This real-life episode was an eye-opener. When engaging in investment discussions, remember never to pay a management fee or any other fee upfront. Stay vigilant and keep the scamsters at bay.
Spotting the Red Flags
The risk of falling victim to scams is real. Whether it's a cold call from a supposedly reputable VC firm or an enticing investment opportunity promising astronomical returns, there are plenty of wolves in sheep's clothing out there. Here's how to spot the red flags and protect yourself and your company from scam artists.
Out of the Blue
Unsolicited contact, such as the cold call I received, should always raise eyebrows. While it's not impossible for investors to reach out to promising startups, the fact that they contacted us via a customer service channel was highly unorthodox. Always question the source of an unexpected contact, particularly when it involves the potential for significant financial transactions.
Too Good to Be True
When an offer appears too good to turn down, that's when you should be most skeptical. In our case, a deal worth 10MM at a valuation of 50MM, which is twice what we were aiming to raise, seemed overly generous. It's crucial to remember that if something seems too good to be true, it probably is.
#### Bitcoin, Bitcoin, Bitcoin
The fixation on Bitcoin, a volatile and unregulated cryptocurrency, was a significant red flag. While cryptocurrencies have gained acceptance in some investment circles, their association with scams is well-documented. The insistence on payment in Bitcoin or cash should be a clear warning sign.
An Unusual Request
One of the most apparent red flags was the demand for an upfront management fee, either in cash or Bitcoin. No legitimate VC firm will ask for a significant amount of money upfront before providing the funds. It's a clear sign that they're more interested in your money than in investing in your business.
Stay Vigilant
While it was a bitter pill to swallow, the ordeal was a valuable lesson. There's a risk involved with every investment, but that risk should never include falling for a scam. Remember to always verify the legitimacy of the firm and never agree to unusual conditions or upfront fees. Stay alert, stay safe, and keep striving for genuine opportunities.
Additional Resources
If you ever find yourself in a similar situation, consider reaching out to the appropriate authorities. Websites like the US government's Advance Fee Fraud and the UK's scam hotline offer valuable advice and avenues for reporting suspected scams.
Final Word
Though this ordeal was filled with red flags and Hollywood-style drama, it's essential to remember that legitimate investors and VC firms exist. Always remember to approach every potential investment with a healthy degree of skepticism and due diligence. Protecting your business and its assets should always be a top priority.
In the end, the lesson learned was invaluable: Never let the prospect of a good deal blind you to potential risks. Avoid upfront fees and always, yes always, remain vigilant.
