Monday 2nd November 2009, 7:27pm
The Startup & The Scammer: A Real Story
Doug Richard, Founder of School for Startups
Tell me what you think of this story. Last week I wrote about the unethical behaviour of so-called professionals involved in charging companies to help them obtain funding, get investment ready, or write their business plans. I closed by saying if you had head of anyone engaged in such practices to let me know.
This week I received an email from Nikki Hesford, the founder of www.missfituk.com, entitled “Not sure if I was being scammed?” She wrote to say,
“Hi Doug,
I have a ladies clothing brand for big busted women and I have been trading for about 6-7 months, Ive built the brand from nothing (Im a young single mum) manufactured the products, defined the brand etc etc, but now I am looking for an angel …. I was at Business North West conference in Manchester last week and was recommended to a chap called Nigel [I’ve changed his name for the moment] who contacted me saying that he helped small businesses find money, either through grants, loans or investors, that he would be able to tailor my business plan, “make it green” and tick the boxes to secure funding. For this, his fee was 5% of any money raised. He sent me over his agreement and asked me to sign it, however before I’d had chance to read it he contacted me saying he’d phoned my local Businesslink and that I was to ring a chap called Phil and arrange a meeting with an advisor. I hadn’t asked him to do this. I did as advised, I met with a lady and she told me there was a rural grant of up to 60,000 euros and I was the type of applicant the money was intended for. I relayed the outcome of the meeting to Nigel and he said ‘great, we’ll get started on the business plan’ but I said that with respect, it was very similar to a grant I had received last year and that Businesslink thought my plan was fine as it was, so said I didn’t need any help I would do it myself and save my business his 5% fee. His response was he had introduced me to Businesslink and that any money I got from them was subject to his fee. I strongly disagreed with this, I hadn’t asked him to phone Businesslink and I certainly had no idea that his phonecall to them was sealing an agreement for me to pay 5% of all money raised through Businesslink, more so since I was already familiar with Businesslink and was registered on their system from 2 years ago when I started Miss Fit.
Thankfully I hadn’t signed the agreement and insisted that I would not agree to these terms. I said I would only sign the agreement if the definition of ‘introduction’ was clarified, he said he would not do this, and so I said we must part company.
He was also planning to find me an investor, and said I needed to have two salaried non-exec directors on board to be taken seriously. I said that I wanted to get my grant, develop and improve my business with the grant money and then approach an investor when I was in a stronger position with stronger sales figures. He advised against this, stating that an investor should be brought on board asap who would help me use the grant money effectively, but I said no, I wasn’t going to hand over say 50% of my business for £50,000 when for the sake of waiting 2-3 months, I could hand over 26% for £50,000. By this point I had decided to part ways, and now about 30 minutes ago I found your blog about corporate financiers charging young businesses a fee to match them to investors, and that is exactly what I was almost entering into. Do you think it was a scam that I was being encouraged to enter into? Have I dodged a bullet?”
My public reply to Nikki, and to everyone else, especially Nigel, is as follows:
First, Nigel, you more than anyone should know that Nikki was not bound by your actions before she had agreed to them contractually.
Second, there is a considerable difference between directing someone to a BusinessLink grant programme and hustling to find real investors. If she had signed the contract with you that you had sent her, (which I have read) you would have been contractually entitled to the money I suppose. But that merely begs the question that the contract you wanted her to sign was extraordinarily greedy. How so?
- Though you told her you would work with her on the creation of a business plan, (which may or may not have been necessary) the contract you proposed obliged you to nothing more than an initial introduction.
- Further, you were including in your definition anyone that was introduced to Nikki by anyone you introduced her to. Meaning that if she had been directed by Business Link to anyone at all, you were planning on taking a cut. This of course (if you have forgotten) is the same Business Link that is funded by the taxpayer, is a public service, and does not need you to direct people towards.
- You also were demanding not only 5% of the money raised but 5% of any money raised from that investor for three years after the initial investment. You must be kidding.
- You included all forms of value, whatever that means, even if no cash were involved. Thus Nikki would have presumably had to pay you cash even if she had received none herself.
Third, you told her she needed two salaried non-execs on board to be taken seriously. Now that is really a load of bullshit. In fact, it is just the opposite that is true. I would not expect Nikki to have salaried non-execs at this stage of her business nor for a long while to come. I’m afraid that your advice is SO bad I can only presume you had an ulterior motive. Did you have some friends who collect non-executive directorships Nigel?
Finally, Nigel you really do offer an unusual collection of services. I took a look at your website. You offer offshore banking, offshore company formation, secured loans, unsecured loans, venture capital, cashback for reading online subscriptions, business consultancy, IT Training, and even claim backs for unfair credit card charges. You are a talented and diverse man Nigel.
I am not sure what words I should use to describe someone who would take advantage of a single mother who is bootstrapping her way out of difficult circumstances by starting an online business, but they are not fit to print.
Yes Nikki, you were being scammed.
Tags: angel investing, investment, investment ready
Hi Doug
Just wanted to let you know that have misspelled the URL above, it should be http://www.missfituk.com not http://www.misfituk.com
Cheers,
Charlie
Love this post! Thanks for this. I’ll be sure to come back again. P.S: I’ve bookmark your site as well.
This post reminds me of the whole Keiretsu forum thing that Jason Calacanis is going on about right now.
Thanks, changed.
Doug