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RE: Ripped Off By Predator VC Broker

SwiftWalker — Fri, 05 May 2006 16:06:51 GMT

Ben Rowland (5/4/2006)

I agree in principle that you need to do everything you can to expand your network. Golf is not the answer for me.

A quote from Fred Franzia (you know, the maker of those nasty cheap wines) in Inc. recently caught my eye:

q: If you could go back in time and do one thing differently in your business, what would it be?
a: Not playing golf in my earlier stages and working harder.

Ben

That reminds me of a "how to be a better golfer" joke I read a few years ago. The number one suggestion was, "go back in time and start playing at an earlier age."

RE: Ripped Off By Predator VC Broker

Ben Rowland — Thu, 04 May 2006 22:48:25 GMT

And the rule still goes same as the "too good to be true" adage: If it sounds too ludicrous, 99.9% of the time it IS too ludicrous. :-)

Agreed!

Paula and Paul, thanks for your post and insight. We're glad to have you here.

Ben

RE: Ripped Off By Predator VC Broker

Ben Rowland — Thu, 04 May 2006 22:45:27 GMT

I agree in principle that you need to do everything you can to expand your network. Golf is not the answer for me.

A quote from Fred Franzia (you know, the maker of those nasty cheap wines) in Inc. recently caught my eye:

q: If you could go back in time and do one thing differently in your business, what would it be?
a: Not playing golf in my earlier stages and working harder.

Ben

RE: Ripped Off By Predator VC Broker

ScribesUnlimited — Thu, 04 May 2006 10:32:38 GMT

Hello, and welcome to our first post.

Couldn't help but glance at the post thread here about some VC brokers being the equivalent of Bruce in "Jaws". We have met through the internet a variety of brokers who, at one point or another, charge outrageous fees and make claims just as outrageous. And the rule still goes same as the "too good to be true" adage: If it sounds too ludicrous, 99.9% of the time it IS too ludicrous. :-)

We can talk about one person, named Joe Blow, (of course not his real name) who guaranteed (yes, guaranteed) investment funding from a bank located in China. All it would cost you to get what you want was $100,000, payable UP FRONT, and in place so that this fellow could go romp around China, wine and dine the big dogs and turn them on to your project.

We can't believe people would do something so ludicrous, but he claims he's had great success with it. He charges no points afterwards, and wants no equity involvement, but STILL, $100k? A little extreme, from our point of view.

Another program that we are investigating currently to check its legitimacy (and perhaps the good doctor will share his knowledge as well) is a program in which funding is achieved by taking out an insurance bond (normally about $50,000), which is then approved by the bank as collateral towards larger funding.

We have a problem with programs. We're still waiting to hear of any out there that can boast a success rate. So far, it's been many pitches and not a single hit.

We don't charge any fees to help people. It's insane to be paying someone $450k per HOUR just to do something as simple as make a few phone calls, run a few checks, and traverse the internet. We're perfectly comfortable with getting whatever is offered to us, usually 1-2%, or sometimes even a % of the profits.

Paula and Paul

RE: Ripped Off By Predator VC Broker

SwiftWalker — Tue, 02 May 2006 12:38:59 GMT

Not kidding in the least. There really is a line in the sand between those who can play and those who don't. Think about if you're getting hot and heavy with an investor, you've had some good meetings and phone calls, you've built a nice rapport, and the (potential) investor lobs a call into you and says, "There's this golf outing on the 12th, one of our guys dropped out and we need a fourth. Can you play?"

If you can answer "yes" and go out and acquit yourself adequately on the course, you have just put yourself on a different level. There will be some bonding that goes on during the round, and for most investors, getting a handle on the executive/entrepreneur is imperative. Some of the things an investor considers is "Can I work with this guy? Do I like this person?" Playing a round of golf gives both sides more time make that determination.

Does this automatically mean you'll receive the investment? Of course not. Does it improve your chances? Absolutely. Conversely, if you were unable to play simply because you don't play golf, does this mean you'll lose the investment? Of course not. But will the investor think of you a bit differently. Yes, quite possibly. The chance to get to know someone on a non-business level simply increases the chance of doing business, because here's what happens following the round -- both sides will walk away thinking one of two things: 1) "I like this guy, I think I can do business with him," or 2) "What a jerk/idiot/maladjusted cretin, what was I thinking? Run for the hills!"

Golf simply gives you one more arrow in your networking quiver. A jerk is a jerk, and playing a round of golf with a jerk does not mean the jerk will get the investment. It simply gave the jerk one extra attempt at getting that investment.

All things being equal, having one added chance to connect with someone can be very valuable. Besides, until you've known the joy of crushing a huge drive, or snaking in a 20 foot eagle putt, or blasting out of a trap and having the ball roll in the cup for a birdie, man, you haven't lived!

RE: Ripped Off By Predator VC Broker

Ben Rowland — Sat, 29 Apr 2006 12:08:01 GMT

He's only half kidding. Seems like many successful people I know build relationships on the golf course... not sure about doing business there. Personally, I don't play golf and don't plan to learn any time soon, and I don't expect that to hinder my career or success.

Ben

RE: Ripped Off By Predator VC Broker

Magonaga — Fri, 28 Apr 2006 12:28:56 GMT

Are you kidding about golf?

I've never played it. On the other hand, if I can do business there - how nice a way to work... green grass, sunshine, swearing and hitting things.

RE: Ripped Off By Predator VC Broker

SwiftWalker — Thu, 26 Jan 2006 16:39:49 GMT

Sage advice, Robert. Glad you found the good doctor's words of advice helpful...and consistent. I'll have to see about getting Dr. VC a raise. Problem is, no one knows where he is. I think he fancies himself like that John Twelve Hawks wacko who wrote The Traveler.

You are so spot on about building relationships. If you can get beyond merely pestering someone by phone and develop some sort of relationship, you increase the chances of making the sale, getting the investment, and so on.

This is why golf is so important! Learn to play. I have been able to forge useful business relationships as a result of being able to play. You spend a few hours swinging clubs, drinking, and swearing like a sailor, and you're bound to have a different view of the person: You'll now know he's a foul mouthed, club throwing drunk with a bad slice. Oh, wait. That's me.

RE: Ripped Off By Predator VC Broker

Magonaga — Thu, 26 Jan 2006 08:51:35 GMT

What an unpleasant experience that must have been.

In my own case, I found myself being asked by clients (I was doing project managment consulting) to build business plans for them and help them obtain VC funding. It seemed like a natural progression for my company (which consisted of me). I actually e-mailed Dr. VC about the propriety of this sort of intermediary work... and the response was yes, but there's a lot of unethical people doing that and you may find yourself tainted by association.

It was good advice, as was his comment (repeated to you) that VC firms/investors don't like paying $ to an intermediary who has no long-term commitment with the company in question. That was resolved for me with this particular client when they asked me to come on board as their VP of Business Development. I still run my own company but most of my time is now devoted to their business.

We're in negotiations now with several VC entities as well as immediate seed funding negotiations with some others. Two things have been invaluable to us in getting to where we are. Both are comments made by one of the VC principals:

"It's not about the money. It's about the relationships." Every single successful deal I have seen us land, has been the result of following that principle. As our biggest client put it - "you guys are like family". And yes, that's the client that's now helping us land some serious business. It goes both ways, too - we're actively becoming a part of their daily lives in as supportive a way as we can, too. Because it IS about the relationship!

People will be the single most rewarding part of your life, and of your company's life.

The other comment was, simply, "trust greed." It IS there. It can be counted on to arise.

Greed's a factor in business. Watch that it doesn't tear apart your relationships - and learn to recognize it when you see it in others. It's not called a deadly sin for nothing.

Hope this adds some value....

RE: Ripped Off By Predator VC Broker

Dr. VC — Sat, 21 Jan 2006 13:09:15 GMT

Bernie, I'm sorry to hear you had such a bad experience with a "VC Broker." There are plenty of good ones, and unfortunately (as you seem to have found out), there are plenty of bad ones.

I view your post as a bit of a "gotta get something off my chest" type of thing, and that's fine. At one point, you sound as if you're ready to move on, and I think that's the right thing to do. Chalk this up as experience. But at the end of your post, you want to know what you can do to stop this guy. I certainly cannot support you actively "going after" someone, and besides, there are two sides to the story. As you point out, you only lost a couple of weeks of time and the $5400 retainer. While I wish you had that time and money back, things could have been far worse. Don't make it worse by going after someone. Focus on the things that you control: Your company. If you decide to go after someone, your company may suffer due to neglect.

As I read your post, a few things jumped out at me. First, read the contract! Make sure you understand it. Have your attorney read it, too. It seems that you didn't fully understand the contract. As a general rule, never sign a contract that someone else wrote! You can negotiate! If you sign an unedited contract that someone else wrote, you can be sure that contract WILL NOT be in your favor.

You should have negotiated a lower rate. $450/hour?!?!?! Excuse me for saying, but that's insane! You should told him you'll pay no more than $150/hour, and then be willing to accept $200/hr. That's it.

In a past life, I have dealt with intermediaries. I have an experience similar to yours. My view is that many "money finders" are simply out to find money for themselves. They work very hard at that upfront retainer, and they work very hard at getting their monthly payments. But that's about it. This is not uncommon. As I found out the hard way, these middlemen are usually desperate men. They're not so much rip off artists as they are in desperate need of cash! They're broke.

I think early stage companies have no business working with intermediaries. So you must accept a little of the blame for this situation. It sounds like you've built a nice company that has a shot at raising money, but at your stage of development, you should do that money raising thing by yourself. Of, if you lack experience with VCs, hiring a CFO (or some other executive) who does have VC experience.

VCs often are not fond of intermediaries, for a simple reason: They hate to see money fly out the door to someone who will have no long term relationship with building the company. The intermediary raises the money, gets paid a big chunk, and splits! The intermediary isn't making sales calls, isn't dealing with customers, isn't hiring the best and brightest, etc.

Intermediaries can become a very valuable association once a company is further "down stream." When it's time to sell a company that has, say, $10 million plus in sales, and $2 million plus in EBITDA, intermediaries (especially if they are part of a larger organization with more resources) can be very helpful. But raising a series A for a start up? I'd be wary.

And if you are going to work with an intermediary, take a look around. Talk to a couple different ones. Does the guy work in an office, or does he work from home? Have you been to the office? How many other people work there? What additional resources does his company bring to the table, or is he working solo? If he is a part of a larger company, you might be willing to pay more for the service, since there will be more people involved in getting the deal done. It is helpful for anyone to be a part of an office with other professionals, even if it is a small office with 4 or 5 other people. A guy working solo, especially from home, is something you should view as a warning sign.

Ripped Off By Predator VC Broker

bernieday — Wed, 18 Jan 2006 23:56:39 GMT

I just got ripped off by a person behaving as a “VC Broker,” and want to WARN others about this type of person. While he seemed totally knowledgeable, said all of the right things, and provided an agreement I felt was completely ok – I still got ripped! How does this happen?

I'll call him Larkin.

Larkin approached our company through a referral (who it turns out got ripped off also for USD 30,000 and who knows of two other companies that got ripped off).

Larkin preys on the purse strings of small emerging companies (we have 15 employees) that are ready to go to market with a product, having successfully passed the seed round with deliverables (and might I add USD 500K in sales already). Each of us was ready to emerge for a Series A Round of financing – looking to Silicon Valley for funds. He claimed to have all of the connections.

Then the deal was struck; We paid the retainer and Larkin began working. His agreement said, only 10 hours a month of work to prepare for introductions within about three months, with billing and payment due June, 2006 (at a rate of $425 an hour). After 18 hours of work and just prior to a meeting he slapped me with an invoice for 24 hours of work (that day’s planned 4 hours and the next day’s unplanned hours…) and demanded payment on the spot. I said, “no, we have an agreement…” He took it out and said, “but it says you only get 10 hours a month of deferred payment, the rest is due and payable immediately!” I said, but I didn’t ask you to work more – you are the one adding up the time in my office!

I told him that there was no way our company could pay him that kind of money…he then added the travel expenses to Seattle and his week’s worth of expenses for being here – which I never invited him – he said he is here 1 week a month and handed me a bill for $12,000+ ! …so, I said, “no.” He immediately began threatening me. He said, “I can ruin you with one phone call.” And also, “I can ruin this company easily…” And, of course he continued to demand payment. I told him to leave and finally after telling him I would pay the bill net 30, he left. I of course immediately called my attorney and a letter was written demanding our retainer back and he’s gone. But that is not without going to my Board (and I’m on the Board—dah--I don’t think he even read our business plan) saying that he was sure I was involved in some impropriety and it was their judiciary responsibility to investigate…anyway, long story short – all is fine and we only lost a week or two from distraction on the deal and a $5,400 retainer.

But, I want to protect others. It is not fair that this predator comes in, builds trust, and then when you have geared yourself to go to do presentations to his contacts in the VC world, he asks for more money, “or else.” This other company I know had it happen to them and they gave him money several times…to the tune of $30,000. Larkin even wrote them a business plan and charged them $12,000 for it, without ever getting permission. It’s very subtle – you think it’s all coming together – and then WHACK.

So, my question, what can I do to stop him? I would like to file something. Or Blog…or??? He is a criminal of the worst kind, preying on vulnerable, emerging companies that have a little money to go the next step and then he rips it off.