I've said it before, I'll say it again: when it comes to business, you don't trust anyone until you know their true motivations, no matter how nice and genuine they seem.
Had a guy from an investment trust reach out to me and asked for my company snapshot and executive summary. Guy seemed like a good ol' boy, grey hair on his LinkedIn profile, southern twang on the phone, missionary work in Africa prior to working with the fund, pictures working with tribesman in relief efforts on Facebook, the whole nine yards. A real heart-string puller on paper...
Long story short, we set up a call today and he explains that the fund has about $100M under management and invests in all stages of funding, but they don't take an equity position, they do a profit sharing percentage. Fine. I'm open to unorthodox deals insofar as it makes sense for both parties and doesn't kill cashflow. So I ask him how he gets paid and he tells me he takes a retainer up front to present to the trust because it's a conflict of interest basing his compensation on the funding amount and that the client [me] chooses what he gets as a consulting fee...
Uhh okay. In that case, I'll bid $1, Bob.
Resisting the urge to offer to pay this guy in milk duds, I explain I wouldn't have a problem paying him a small retainer as an act of good faith, to be paid in tranches upon reaching certain milestones within the presentation process...provided that the majority of his compensation is payable upon the event of the company getting funded from the trust. Pretty fair deal so that all interests are aligned, I'd think...
Since he is serving as the fund's sole representative, I ask him if he has his Series 7 to broker the deal. He asks "What's that?"
Red Flag #1
So I have to explain to a supposed fund representative of what a Series 7 license is. He says to me "Well John! You seem to know a lot about this!"
[Face palm...] At this point, this is like a doctor saying, "Hey you really know your stuff! Can you show me what this doo-hickey does?? [points to stethoscope around neck] All I know is when I yell into it, it hurts my ears..."
So I get off the phone and prior to sending the full business prospectus, I ask the guy for a portfolio of companies that the trust has invested in via email. He writes me back the following:
I cannot do that due to required adherence to confidentiality agreements. The Trust does not allow even the clients to reveal their source of funding - its a deal breaker.
There is no communication between "prospective" clients and the Trust; it is the basis of my involvement. Before releasing the funding a strict NDA is requiring there be no disclosure of information regarding the Trust, its clients or partnership arrangements except by order of a court
Ahhh ok, all I read from that was "no, we have no portfolio companies for reference, you're just going to have to trust a perfect stranger." Red Flag #2...that $1 retainer is sounding better and better.
Pressing forward, I write back:
Chris [name changed for confidentiality],
I understand your concern, but I'm sure you can also understand my concern in regards to first determining the legitimacy of your trust in the form of either a portfolio of current holdings or referenceable business contacts. Before I release any further information on our company's internal workings, especially confidential financial documents, I need to determine the validity of your trust from a third-party source, preferably more than one.
To start, can you provide me with the chosen name of your unit investment trust (UIT) that is registered with the SEC? Upon request, when I release financial information to you, I would have no problem engaging the services of a third-party auditor of your choice to determine our financial statements are accurate according to GAAP.
I receive no answer back, most likely because he didn't know what UIT, SEC, or GAAP even stand for. Who owns this trust exactly??? Willy Wonka?? Does my investment round come with a golden ticket? Do the shnozz-berries taste like shnozz-berries? Only shnozz-berry I'm seeing here is you, dude-man...
Goes to show you, no matter how genuine and trustworthy someone seems at first, even if they've got photos of themselves feeding starving Africans, doing missionary work, owning a chocolate factory, whatever...it could very well all just be a front to throw you off the scent of bullshit that's wafting from their mouths when they open it.