Times are getting strange.
I have seen a disturbing trend where some capital allocators engage in predatory practices, particularly targeting early-stage orthopedic startups. Some well-known capital allocators ask for up front payments without any serious intent to invest.
Be careful.
Here's what you need to be aware of:
The Predatory Playbook:
Initial Pitch Fees: Some investors or firms are now asking for hefty fees just to consider your pitch. For example, we've seen demands for up to $17,000 before even discussing your business plan in detail. This is an alarming red flag.
Comment: Note the extensive list of investments, which might seem impressive but should not distract from the upfront cost of engaging with this firm.
Due Diligence Fees: Following the pitch, these entities might then ask for significant due diligence fees, sometimes as high as $90,000, which are supposedly to cover the cost of evaluating your startup. However, there's no guarantee that this due diligence will be completed, leaving startups out of pocket without advancing towards funding.
Control and Board Seats: After the due diligence phase, predatory investors often seek disproportionate control over th...
