Raising money is always the hardest part of getting your film project off the ground… at least until it isn’t. To quote Obi-Wan Kenobi, “You will never find a more wretched hive of scum and villainy.” You must be able to recognize the dreamers and deceivers, the ones who will at the very least waste your time chasing rainbows and possibly go after what legitimate money you have already raised. Here are a few practices for recognizing these losers and cheats.
Dreamers? Oh yeah, you’ll probably run into more of these than the crooks. These are the pitiable people who really truly believe that they can raise all the money in the world. These folks are more difficult to discover early on because they don’t ask for any money up front. I’ve spent far too much time with guys like this because I kept saying to myself, “Well, they haven’t asked for anything yet” and “they are only taking my time, not my money,” but I’m here to tell you that that is almost as bad.
They are taking up much of your valuable time, time you could spend working with real professionals. These useless folks are motivated by subtler basic needs. They want to be “players”. They list the feeling of power and hanging out with the pretty people (or pretending to). They like doing lunch… and they LOVE to waste your time with conference calls, emails, and paperwork. Here’s some quick identifying characteristics:
- When the topic comes to specifics they have a deer-in-the-headlights look, or they dance around the topic with big words with no substance.
- Demand references. Ask for details on any deals they have closed. Check up on them.
- Ask them about any of their supposed sources of capital and insist on having written proof that the money is real. That means back accounts, commitment letters, proof of funds reports… and verify them. It may seem brutish or uncouth, but it must be done sooner or later.
- Google ‘em. Bing ‘em. Search for any articles on them. That means clicking on the “news” link at the top of the search results page, not just the web detail. That will search news databases. If it comes back with nothing, that will tell you everything. If it comes back with bad things, please skip to the next section. Either way you are forewarned.
- Ask for a resume, CV, or history. Look them up on Linkedin and use that. Then verify it. Don’t take their word for it.
The frauds (deceivers) are not nearly as widespread but are far more treacherous. They are scam artists and they are out to rip you off. They usually have perfected their act and come off very professional. You can usually spot them, though, because their schemes generally boil down to “give me money now and I’ll give you more money later.” When it sounds too good to be true, it usually is. Sometimes they are subtle and are just requesting compensation for expenses or as elaborate as a request for thousands of dollars (or even a million) placed into an alleged escrow account so that they can release millions of more dollars.
OK, so how do you protect yourself from the professional deceiver? Here are a few steps:
- First, do all the things listed for dreamers. While they usually won’t have the deer-in-the-headlights look, they are practiced and accomplished afterall, the other steps work just as well. That said, these are pros, they will have some aces in the hole prepped for you.
- Check for court cases against them in the state and federal courts where they reside as well as in California and New York. Search engines are good for this to start with, but nothing works better than just going downtown and doing a check.
The one thing both of these groups have in common is that their capital raising schemes usually involve an elaborate proposal. Something like Company A will post collateral to Company B who will issue a letter of credit to… who will loan money to… Anyone with half a head in business will ask why the beginning and end don’t just get together and cut out all the middle men. The answer? “It’s not done that way.” Frankly, if you told any plan that involves two or more of the following words, just run: “back guaranty”, “letter of credit”, “escrow”, “foreign bank”… oh, and it never hurts to just pick up the phone and call. Not the number they give you. Look up the number for the financial institution or partner and just plain call. I’ve shut down more than one broker working with a foreign investor just by finding the person on the other end and verifying.
Remember, until the check clears or the wire has completed, it’s not a deal. Don’t bank on it and don’t accept the words “trust me.”
Sorry for all the doom and gloom, but being forewarned and alert is better than getting the shaft. Oh, and Han shot first!