Angel Investors: 7 Online Business Plan Scams and 1 Real Deal

It's a competitive business world, full of low-cost options that promise the same quality services as their more expensive counterparts. How do you know if your online business plan is good and the people who want to invest in it are legitimate?

That’s why we wanted to devote this blog post just to Angel Investors. We’re going to take a look at 7 online business plan scams and 1 real deal, giving you all the tools you need to determine whether or not an opportunity is worth pursuing.

#1: Pay-to-Play Scams

One of the most common types of online business plan scams involve you paying a “fee” to an investor for the opportunity to pitch your idea. In some cases, this just means that investors will get a better look at your business plan, but in many cases it will cost you thousands of dollars. In both cases, however, if the investor doesn’t feel like your idea is worthwhile, they will simply ignore you without giving any feedback on how to improve it. In some of these cases, this can be as simple as not responding to you at all.

As a result, you will have to pay outrageous fees to investors, who often do this in order to build their own personal brand, while simultaneously wasting your time and your own money in the process.

#2: Bait-and-Switch Scams

Another type of scam that occurs when you pay an investor is the bait and switch. This happens when an investor tells you that they are interested in investing in your business plan (and then does not follow through), or it happens when an investor changes their mind about investing in your business plan after looking at it for a short period of time. Once again, these investors usually don’t offer any helpful feedback on how to improve the quality of your business plan.

#3: Deceptive Promises

A third type of scam that people fall for when looking for investors for their business plan is being promised an investment without any proof of it actually happening. For example, an investor may say that they can get a $500,000 investment for your business plan with little or no proof. In these cases, the investor may only be using this as a way to build credibility and trust with you so that you will pay them money to review your online business plan instead of someone else.

#4: Online “Vanity” Publishers

These are publishers that offer to publish your online business plan for you, but then use it as a way to rob you of thousands of dollars. In short, they claim that they will publish your online business plan and that it will be full color and in hardback, but if you look carefully on their website you will see that they really only print books in black and white. They usually have a disclaimer somewhere saying that they do not guarantee the quality of their services either.

#5: Product-Based Scams

In these cases, an investor might tell you that he can provide your customers for your online business plan at first glance. However, in many cases this will not be the case at all. For example, an investor may tell you that he is going to give your customers a discount on your product when it’s released and will also test market your product for you. In reality, however, they are just trying to take advantage of you by giving the discount in order to lure you into giving up your idea. Once the customer has purchased the discounted product, they will steal their money by selling them a counterfeit version of it online at an inflated price.

#6: The Pyramid Sales Scheme

This is one of the most deceptive types of online business plan scams that exist today. Basically, a pyramid sales scheme involves you paying thousands of dollars in order to get a percentage of the money that the investor gives to his customers (called “downlines”) when they purchase the product that your investment paid for. In reality, however, this does not happen at all, and you will pay money for little or no profit at all.

#7: The Ponzi Scheme

In this type of scam, an investor offers you tens of thousands of dollars in exchange for your business plan. Once he invests his money into your business plan and starts giving out cash to his investors, however, he will stop giving them any more money out of fear if losing their investments. As a result, you will never see any of the money that he promised you and neither will you see any of the money that his investors gave him.

#8: The Real Deal: The Right Way to Get Angel Investors

Do your research. You can find many reputable angel investors who are willing to help startups at no cost by checking out sites like AngelList and Crunchbase (through Crunchbase Pro). In this way, you can meet potential investors and get much-needed feedback on your business plan without having to go through any of the other common scams.

Once you have found a potential angel investor, send them your business plan and then tell them what has been discussed verbally. Make sure that you have a very strong business plan. A strong business plan is one where you speak directly to its strengths, what it does well, and how it will make its customers happy. If the investor likes your business plan, he will want to meet with you in person in order to evaluate it further. In this way, he can do his due diligence and not just take your word for it about the validity of your startup idea.

In addition to an evaluation of your online business plan from an actual angel investor, do not forget that conducting research into the company is smart on your end as well. Before investing in the startup that you are thinking of investing in, learn how the company got started and how it has been growing over time. This will let you know whether or not this company is on its way to becoming a viable business for you.

Conclusion: Marketing Your Online Business Plan Wisely

While looking for an investor for your online business plan may seem like a good idea at first, it can often lead to more harm than good. In some cases, investors will simply try to take advantage of you and give you advice that they clearly cannot follow through with. In other cases, they may promise you something that they can never deliver on.

Conclusion: David C. Kale, CPA, MBA is a business owner and the Director of Marketing for TalentEase. His interest in IT, accounting and marketing began at an early age and he has been working as a skilled professional in these fields for over 15 years. He started his career as a tax preparer and quickly moved up to become a senior tax analyst. In 2008 he realized that he wanted to get into management positions and have more impact on other people’s lives through his work rather than just preparing taxes to bring in extra money. Nowadays he works with small businesses in a variety of industries including technology, finance, staffing services and manufacturing.