Startup Scams – And What To Do About Them

The startup space has been attracting a lot of interest in India. There are lots of young entrepreneurs who feel they can start a new business which can change the world. This is all for the best because we need the spirit, creativity, and enthusiasm which young blood can bring to infuse fresh life so that we can continue to progress.

Unfortunately, because these entrepreneurs are very young and immature, they’re also very vulnerable. There are lots of scam artists who are out to take advantage of the fact that these founders are looking for funding and don’t know how to get it

They make all kinds of promises to lure them in. For example, they promise them funding by offering to introduce them to influential well-heeled connections for a “facilitation fee” – and end up converting that poor entrepreneur’s dream into a nightmare because they have no intention of delivering.

These scum bags will often end up cheating the entrepreneur, by stealing his idea and taking ownership of all the hard work he’s done. By the time he realises that he’s spent many months just chasing a mirage there is precious little he can do about it. He feels bitter and angry, and feels that all investors are crooks.

Talking About It Helps

One way of fixing this problem is by openly sharing your experiences on LinkedIn as to how these scam artists work. The truth is that when you’re cheated, you contribute to the problem by keeping quiet because your silence encourages the cheater to cheat other people. Because you are ashamed that you were so naive that you got duped, you clam up and don’t want to acknowledge that you allow yourself to be taken for a ride. It is this passivity which allows these cheats to continue to flourish.

They hone their techniques and polish their modus operandi because new suckers are born all the time. It’s because entrepreneurs don’t share this information amongst themselves that this problem becomes even worse.

Yes, there are informal networks of founders who discuss these issues amongst themselves, but this is not enough. We need openness and transparency if we want to clean up the system. While you may not be able to get your time or money back, the best form of revenge is outing these scammers, so they aren’t able to swindle other founders.

Investors Need To Be Open Too!

I think it’s equally important that good funders also speak up, and let founders know what is considered to be good practice in the investor community. If we don’t, then the entire funding ecosystem starts getting a bad reputation and this will affect all of us. By keeping quiet, we allow a few bad apples to spoil the entire bunch, because “bad money drives out good.”

These are still early days, but if we don’t nip this problem in the bud, we will find it increasingly harder to cope with it over time. It’s great that there are open platforms like LinkedIn which allow funders and founders to connect with each other, so they can share their experiences, and learn from each other.

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]

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