Topic: Dubious Offers from Others: It’s interesting to note that many founders have already received offers about which they’re unsure whether they’re legitimate or not.
Of course, there are plenty of gray areas. But if something doesn’t look legitimate, it probably isn’t. On the other hand, just because something looks legitimate doesn’t mean it actually is. Keep your eyes open, and if in doubt, feel free to ask the TFU team. We’ve seen quite a bit over the years…
A few rules of thumb:– If something pretends to be something else, it’s not legitimate. For example, letters that look like they’re from the Federal Gazette but turn out to be “offers for publication”; emails supposedly from banks.
– If something seems too cheap, be careful—there’s a catch. No one gives anything away for free; the much higher price may ultimately be hidden in the fine print. You might also receive a retroactive bill just when you’re so deep into the project that you can’t back out anymore.
– when something is available “for free,” or when something illegal is touted as desirable, they’re trying to scam you. Clear examples include, for instance, emails from bankers who want to transfer millions to your account, as well as “great deals” from your extended circle of acquaintances who are also happy to deal with illicit funds.
– If something yields a high return but the risk is supposed to be low, something can’t be right. In a market economy, it is absolutely impossible to find a risk-free investment with a high return. The rule is: high return, high risk— low risk, low return. This is ALWAYS true. WITHOUT EXCEPTION.
– When two transactions that are not actually related are bundled together, it’s usually to your disadvantage. In this case, the total cost is almost always too high. For example: You sign an affordable consulting contract, but then you’re required to purchase one or more insurance policies from that consultant. Would you have needed them at all, and if so, wouldn’t you have wanted to get independent information?
– Especially important for young entrepreneurs: If an investment offer doesn’t clearly state the costs involved, it’s an attempt to mislead you. “Costs” don’t just mean a monetary payment. Costs also include the equity shares being demanded or the conditions attached to an investment. Anyone who promises you money for your company—whether as a direct or indirect investment—expects something in return, and that should be laid out on the table from the very beginning. Always be cautious when the conversation initially focuses only on the great things you can achieve with the money and not on the “price” you’ll have to pay for it. At some point, you’ll be dazzled by the possibilities. Then, when you eventually learn about the “costs,” they might not seem so bad after all. You might end up giving up more shares than you intended. Or you might agree to a management team that you no longer get to choose yourself—but are still expected to pay for.
