So many of you are no longer working for the Big 4 or next tier firms. Those of you who had a chance to stay long enough – not as common as in the past and more often not your choice these days – may be thinking about setting up your own shop. Whether it’s tax or consulting, going into business working for small business or maybe investing in others’ dreams, even an “expert” can make mistakes.
It’s a cold, cruel, ruthless world out there. One of my brothers, an entrepreneur himself and a lawyer, is every so often pitched by those looking for someone squeaky clean but street-savvy to “front” their business. Some deals have been tempting. Some had been set up well, more white than black. But nothing is never for nothing and so he always says, “Thanks, but no…”
In this article, written exclusively for re: The Auditors, Greg George talks about taking care who you get your funding from.
Greg George is Managing Partner of GTI Advisors; Threat Management Practice Group. A senior advisor to executives, business owners, private equity investors, M&A teams and transaction lawyers, Greg provides guidance on matters of enhanced due diligence research, threat analysis, actionable intelligence, fraud avoidance, security issues, and corporate espionage realities. For further information please visit http://gti-advisors.com or contact Greg directly: firstname.lastname@example.org or on Twitter.
Looking for funding for your new company?
Be careful! Danger lurks where you may least expect it…
With more than 12,000 layoffs from larger U.S. law firms this past year, thousands cut form the Big 4 audit firms, and countless jobs lost throughout the financial sectors, professionals are walking new ground as they search for work. Many have turned to entrepreneurship – and funding is always the first issue to overcome.
Even the best and brightest lawyers, CPA’s, bankers and other professionals can have a good chunk of a self-funded start-up money ‘hi-jacked’ if they don’t do thorough research, and properly vet those who say they will find funding – although, for a fee.
I’ve been monitoring what appears to be the longest discussion string in LinkedIn history (up to 223 comments now) going on at the Private Equity and Venture Capital Group.
The discussion question is: What do you think about ‘up front’ fees…? (for funding a deal)
There has been very good information posted, there has been very bad information posted. There’s been a lot of smart ass comments and bullying here and there (yes, very professional), many postulating their own ‘expertise,’ “…this is how good I am, I’ve done these $20mm+ deals…,” etc. By the way… Never tout yourself as an expert, it diminishes your credibility. If you’re worth the recognition, others will do that for you. I’ve even seen a few spamming, trying to sell their services/deals – astonishing…
A few thoughts on ‘brokers’ and other middle men/women requiring fees ‘up front’. It’s usually pitched under the guise of due diligence work that needs to be done, or improving your business plan and pro-formas, along with all the assurances and window dressing needed to get your deal funded. These are great sales people, and most are frauds.
You’ll never get to a closing, they will stall and stall and stall… for months – and you may never see the ‘up front’ fees you gave them ever again. If you think an alternative financing or equity funding program might be the right deal for you, at minimum, at least find out:
- Who these people really are
- Talk to several past success deal client references they ’should’ provide
- Ask who they represent as potential investors on your behalf and if they’re getting a few from them too, and
- What the source of funds is. (Don’t get sucked in to a money laundering or tax evasion racket.)
You can check if the person and firm are licensed in the U.S: FINRA Broker Check
The regulator FSA (UK) also provides alert lists of EU and other international players in the finance and equity funding game not registered or vetted.
Another phenomenon of these economic times is the groups or club of angel investors who charge ‘up front’ fees just to hear your pitch. A good example of what’s going on with these guys is VentureHype (a great resource for many VC, Angel, start-up and investing topics.) The article also links to a well done ‘rant’ by Jason Calacanis on these practices.
Bottom line 1: If you do not have the expertise and require consulting help to get your business plan, pro-formas, your perfect 7-slide ppt for your pitch, and everything else up to speed to be received as an attractive, fund-able opportunity then set a budget, hire a competent firm or person, and pay them to help you accomplish this. Consulting services to get this right the first time and it will have nothing to do with capital raise.
Bottom line 2: Assume any up front “broker fees” to arrange funding are frauds. Period. (I’ve been dealing with these kinds of people for a long time.)
More than $4mm in “up front fee” frauds have come across my desk the past many months, especially since the real financial crash started in September, 2008. In some cases, we have been able to get the “up front fees” back on behalf of clients, even those fees that were wired offshore before the ink on the check was dry. We continue to work on others. Leveraging RICO statutes helps.
I have participated as an advisor to investors and as a decision panel member riding shotgun over the due diligence drill for companies seeking funding. During the past 12 months, several organizations, equity firms, angels, family offices and high net worth individuals I’ve worked with have funded more than $30mm in start-ups, acquisitions and expansions – and not one dime of ‘up front fees’ was involved.