Preying on Entrepreneurs

One experience I’ve had too much of is younger entrepreneurs being preyed upon. It’s a classic and all-too-often scenario I’ve seen played out over the years with student-entrepreneurs, but also three times in the past year with twentysomething college-grad founders.

What happened in each of these cases was fairly typical:

  • They met successful entrepreneurs or businesspeople who were at least 15-20 years older. Over the course of several meetings, an opportunity for a “partnership” or “merger” or “investment” emerged, involving significant or majority equity.
  • The founders reached out to mentors and advisors they know to get feedback and advice on the proposed deal. Those interactions uncovered some curious aspects of the deal and unanswered, but very important, questions.
  • The founders were counseled to get an attorney involved. A couple balked, understandably because of cost, despite the assertion that it’s well worth the investment.
  • The talks broke down, either because the questions remained unanswered, or the founders had a gut feeling that it was a raw deal.

To be fair, I know that some such scenarios work out fine. But I hope those share a common thread with the one outlined above: the key step of reaching out to unbiased, experienced people who have nothing to gain or lose and who ask tough questions.

2 comments

  1. plane111

    I could not agree more. An entrepreneur’s time, effort, and focus are paramount to future success. Unfortunately, “service providers” extract a heavy toll. The toll does not have to be cash, but in many cases is time, diligence, and the focus of the entrepreneur which distracts and takes the entrepreneur off the critical path for their project. Customarily this is done when the entrepreneur is seeking seed capital because they are the most vulnerable trying to juggle fundraising and the fledgling business.

    Where I’ve seen some of the above remedied and or the entrepreneurs insulated from some of the above issues has been through the efforts of a number of incubators across the country. Various incubators have assembled trusted advisors, mentors, mentor networks, and entrepreneurs in residence. The incubators have vetted a short list of known service providers: legal, accounting, board members, and angel groups that have experience with start up ventures. In some cases the incubator formally assists the entrepreneurs in identifying a business driver and appropriate service providers.

    Great ideas have to get through the formative years: bringing together innovation, leaders, and financing to turn a start-up into a business.

    • Raman Chadha

      Terrific comments, thank you. Yes, incubators and other development programs (university entrepreneurship centers, Startup Leadership Program, Founder’s Institute, etc.) all provide a valuable filter for such providers, helping avoid the predator trap. And very good point that many entrepreneurs are vulnerable during the funding stage. Thanks again!

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