How do you spot a fake venture capitalist on the Internet?

Recently someone asked me, "How do you spot a fake venture capitalist?

Apparently, she was concerned by the recent financial scandals and what she could do to avoid being taken. Margaret has a business idea which she has turned into a business plan (BP). She explained, "I have been shopping it around to ALL the VCs on the internet."

She had met a number of Venture Capitalists (VC), or persons she thought were VCs on the internet. They were from the USA, Europe AND Latin America.

She told me, "The US VC's seemed real and had money; but the others ... Well, they seemed fake."

I asked her what she meant by that. She said that the Europeans and Latin Americans (she is Hispanic), she had spoken to seem to be just interested in getting her BP and then trying to sell it to a bank or someone else for a fee.

Others were "Consultants who wanted to charge her a fee just to look at the BP. None of them had any real money to invest."

She asked, "How can I tell? I seem to be waste my time and I'm afraid I going to make a mistake. What can I do?"

I told her the following:


"My experience with the start-ups and start-up funding is that the VC often come in much later than the Business Plan (BP) stage. They are looking for a going concern that has proof of concept, intellectual property protection, a basic corporate structure and systems in place, and some key human capital in place. VC will do a deal for a piece of the action and an active role in the future development of the business. VCs will be there for the 'long term (3 to 5 years)'. They will also own 50% - 80% of the business."

"There are deal makers who may claim or allow you to think that they are authentic VCs. But these are middle men who will shop around your business plan to investors (Angels, and others) for a fee. Their fee is based on successfully matching you with an investor.This is what you will be buying from them."

"Deal makers can be useful in opening doors, but you should not expect more from them than they can deliver. Deal makers invest their special knowledge of the small investor network. Deal makers are not there for the long term."

"Yes, there are the Consultants who are there to earn a fee for their advice. Consultants invest their intellectual and experiential capital in your business plan. They can be a valuable resource to help you identify the strengths and weaknesses in your Business Plan and your marketing strategy for the plan. Again don't expect them to get the funding for you. It is your BP, not theirs."

I then asked her:

"Do you want to spend days, months, or years searching for just the right investor? If so, that is your choice. But if you want to take your dream and turn it into reality, you are going to need help."

"That help comes in many forms and to succeed as a business you will have to learn what help you need, where to look for it, and how to use it to your advantage."

"You have been focusing too much on your idea and not on the job of selling your idea. VCs are only one part ofa complex investor market made up of many different parts."

"What you need to learn is management. Management is the most difficult lesson an innovator like you, hoping to become an entrepreneur, can learn."

Lesson:

Once you decide to turn your idea into a business, you must change your orientation from innovator (the creator of the idea) to manager(the one who guides and nurture the idea through the development process).