
Ask HN: What are incentives for criminals to heavily seed invest in startups? - aquins
I&#x27;ve gotten an investment offer for our startup, which includes several millions of USD for a minority stake; almost all of that stake goes to preferred investors that apparently want to remain anonymous.<p>Our team would keep the majority of shares (with same voting rights), and it seems like we&#x27;d keep at least the same, perhaps even majority, of board seats, as the investor believes that the management should stay in control to keep them properly incentivized.<p>I&#x27;ve had a long personal meeting, and demoed our technology, and I&#x27;ve openly said that we still have low (but some) traction, and made almost no revenue. The technology is really solid, but not totally out of this world (we have competitors successfully working on comparable solutions). The market is growing strongly and the investor was mostly interested in our marketing approach, which I was apparently able to explain well. I really think we have a great setup in a great market, with a scalable product, but the offer and valuation seems surprisingly generous.<p>The offer seems almost too good to be true. Except for the anonymous preferred investors, there are really no red flags and you can rationally explain the incentives from a very risk-friendly investor (it&#x27;s aggressive, but not irrational. &quot;It could work very well with enough investment&quot;).<p>However, I do ask myself in light of the anonymous investors: is there any incentive or risk of criminal energy? Money laundering wouldn&#x27;t make a lot of sense, as the investment wouldn&#x27;t be in cash but already in the banking system. I think it&#x27;s kind of weird that I wouldn&#x27;t know who they are, which seems to me like a red flag. But is it really problematic?<p>I might be overly paranoid and should simply appreciate our opportunity, but I wanted to know if anyone had heard something similar before?
======
aquins
So it's highly likely a scam; I was always skeptical, but I should have been
more skeptical based on their website, but I was like "Eh, maybe some high net
worth individuals just don't really care about website aesthetics." After all,
I've met plenty of wealthy people who don't really care about how they or
their things look.

They bait you with a private offering memorandum with an attractive valuation,
which is based on absolutely nothing tangible (hence my skepticism), and after
you invest more time (and get greedy/hopeful), they will ask for a 25k
retainer payment for a lawyer who is in the scam.

There is a collection of evidence on this following page, which seem very
legit with a lot of contact information to verify:
[https://sites.google.com/site/venturenetpartnerschronicles/t...](https://sites.google.com/site/venturenetpartnerschronicles/thomas-
love)

I'm honestly embarrassed for even following this lead for so long, but in case
any one ever searched on HN for Randell Young or Venture-Net Partners, they
ought to know what's going on.

Thanks all for your help!

------
rl3
Who presented this offer? Who are you demoing this to? I'm not asking for
names here, just the nature of the entity: is it a sole practitioner legal
representative, or is it a larger firm of some sort? Are they reputable? Is
your technology or product sexy enough that it'd even warrant anonymous money
in the first place?

IANAL (or even remotely an expert on this subject for that matter), but one
would think reputable anonymous money would just use reputable firms as a
conduit to avoid exactly this scenario.

Also if it's organized crime you're worried about, favorable terms right now
absolutely do not matter. They have a long history of investing in businesses,
only to later use that investment as leverage to systematically milk the
business for all its assets. Your terms now are only worth as much as your
ability to resist agreeing to unfavorable terms at a later time under
potentially extreme duress.

I don't know if that's what's happening here (it probably isn't), but keep in
mind that anonymous could also mean competing interests trying to tamper with
your business in a legal manner, or any number of other bad-news scenarios. If
it's too good to be true, it probably is.

Anonymous or not, personally I'd only touch money that you're able to verify
as being highly reputable. Anything less isn't worth the potential hell that
could ensue.

~~~
aquins
It's a small VC, but with a public and seemingly legit appearance incl.
portfolio references. Nothing crazy, can't say/see much about reputation, but
seems legit. Especially if keeping their network confidential is a priority,
seems consistent.

And I definitely don't worry about this as criminal energy towards me, but
rather financially. I can't see anything that would be wrong, and also the
legal tampering doesn't worry me too much as our team would still remain in
control, but as you said...If it's too good to be true, it probably is. I just
can't find the poop, and am looking for other experiences to help me.

~~~
rl3
Ah, that's a tough one. Perhaps people here can weigh in on how common this
type of confidentiality is in general, and the mechanics if applicable.

------
hluska
Are you involved in cannabis tech? I found a Forbes article about a VC firm
that raised a fund from investors who wanted to remain anonymous:

[https://www.forbes.com/sites/debraborchardt/2016/08/22/marij...](https://www.forbes.com/sites/debraborchardt/2016/08/22/marijuanas-
investors-prefer-to-keep-it-a-secret/)

Otherwise, talk to a lawyer, pay attention to how the deal is structured, and
be careful with any type of diligence they want to do before they write a
cheque.

Realistically, criminal activity is possible, but unless you're involved in
very specific types of tech or have a certain kind of business model they
could exploit for money laundering purposes, I think it's low risk. Even the
money laundering bit seems unlikely unless you have a very specific type of
background. Bringing some random tech founder into a money laundering scheme
sounds like a pretty good way to punch your ticket to a federal prison.

Rather, I'd say it's more possible that the investors have invested in a
competitor. In those case it could be very bad (they want to learn your
secrets), or it could be fine. They might want to hedge their bets without
sending a negative signal about other portfolio companies.

~~~
aquins
Thanks for sharing, but even in this case, the investors were worried about
releasing their names - the company did however know who was wiring them the
money.

In our case, it looks like we won't know (see other comment regarding
syndicates). I don't like the idea of using money that I don't know where it
came from, and I don't know how to protect myself against bad surprises in
many years down the road ...

~~~
hluska
Whenever you close an investment there is a very real risk that everything
will go to hell. In this case, honestly, I am less concerned that they want to
stay anonymous and more concerned with this:

"[I]t seems like we'd keep at least the same, perhaps even majority, of board
seats, as the investor believes that the management should stay in control to
keep them properly incentivized."

It would make sense for an investor to want you to retain a majority of equity
to stay motivated, but board control seems like a strange incentive. Keeping
relative control of your board (at this stage) isn't uncommon, but that's an
odd way to communicate it.

Maybe it's nothing, but between a generous valuation and handing you board
control to keep you incentivized, I would be rather worried if you had to
raise a down round.

Damn, now you've got me feeling paranoid...:)

------
neom
How is this structured and papered? Not sure your location but in the US you
need to check your investors are accredited and who they are so I'm not sure
how they expect to remain anonymous? We have a very minor investment from a VC
firm that is basically an angel syndicate, we don't know who the angel
investors are outside of they're accredited investors and high net worth
individuals doing between 1-2MM seed a year, $60k cheques, lots of startups.
If things go south, they don't want us bothering them directly, and want to
work through the firm that runs the syndicate, who is very well respected.

~~~
aquins
US, yes. You mean the VC = investors, right? How do I check for accreditation?
And it very much sounds like a syndicate as well. In your case, does the money
flow through the VC, or comes directly from the high net worth individuals?
Latter would mean I could see who transfers the money then, right?

~~~
neom
"VC" = management company who bring deals to table for syndicate. They host an
investor call, you pitch on the call to the investors at large, anyone
interest tells the "vc", wire funds into an escrow account hosted by the "vc"
(management company) and then however much is committed is how much we get, we
gave a limit the syndicate could invest, and hit that limit.

~~~
aquins
Thank you very much for elaborating!

I wasn't very clear on my previous comment, but I meant that one you said
"check your investors are accredited", you were referring to the VC as the
investor, and not the individuals investing the money, right? So how can I
check if our US-based VC is accredited?

Also, we also have a maximum limit, so this seems to be a very comparable set
up as you had. So presumably, the VC "pre-checked" with their high net
individuals if they were interested, prepared a proposal and would want to
continue with the pitch if we agree. And if successful, proceed with the
financing.

So do I correctly understand that you also never knew who the individuals
behind the VC were, as the VC represented them at all times?

~~~
neom
You ask them, although it's usually a bullet point in a mutual diligence, our
lawyer has a form their lawyers sign that attests to a bunch of SEC stuff. As
a side note, I've actually been told in the past by a very large VC firm it
was rude to ask, I presume at a certain point it's assumed. I also don't think
you would/could ask the investor if their LPs are accredited investors, I
certainly have not nor have I ever heard of it, but IANAL. I can recommend my
lawyer however, Adam Bier out of SF.

------
kraigie
Tax evasion? Some countries don't tax foreign income so maybe they will
declare a smaller investment then they can lower their tax bill since they can
claim more money came from out of the country (and all.their returns will)

------
staticautomatic
I take it you haven't talked to a/your lawyer? Do you have one? Can recommend
a fantastic guy in SF if you're interested.

~~~
aquins
No. That would be very helpful, once I make some more progress with my
research. Can you send his info to dubbelkolla@protonmail.com - thank you very
much!

