For founders there is (imo) a really strong red flag that you should be on the lookout for. He insisted founders paid for "due dilligence" to be conducted by a firm he covertly controlled and when they paid the fees that firm evaporated with the cash.
I don't think any legitimate investor is going to say you should pay for their due dilligence, and that's never happened in any of the situations I'm familiar with, which include several rounds across private offices, PE and VC firms small and large (and megalarge)[1]. If you think about it, for the target firm to pay for due dilligence would set up a direct conflict of interest - the due dilligence team has to be 100% working for the interests of the investor.
The problem here is he was paying finders fees for introductions from people who are probably legit and don't know what he was up to. So as a founder on the lookout for investment you might be inclined to trust him because the introduction would come through someone already in your network that you probably already trust (at least a bit). I could totally see how you might overlook if you are burning through your runway and someone seems to offer you a great deal, but you have to constantly be on the lookout for people out to shaft you in one way or another and this is something people might have spotted if they thought about it.
[1] Thinking about it, I've been in situations where fees of one kind or another get paid by the target firm when the deal closes but I don't think that's the same.
Considering he controls both firms, keep in mind he could even offer to split the fees, or offer to pay 90% of the fees. Then it sounds pretty generous instead of shady...
At the end of the day, this scam works because someone confidently tells you over video that he wants nothing more than to invest 10 million dollars and the only thing that would possibly stop him would be that if due diligence discovered fraud at your startup. It'll keep working, and it's basically because people aren't used to dealing with conmen who are willing to look you in the eye, shake your hand, etc.
> If you think about it, for the target firm to pay for due dilligence would set up a direct conflict of interest - the due dilligence team has to be 100% working for the interests of the investor.
That would be true if the target firm got to pick the due diligence team. In this case, the investor specified who the due diligence team would be, which negates the conflict of interest.
For everyone's benefit, here's a recent encounter that a friend if mine was in.
Friend has a startup that's raising. They put their name out on a bunch of places, including various listings.
Someone contacts them. They say they are some company. It's a real company that exists, but not a well known one. Website has some odd things about it.
They arrange a call. They are super impressed with the startup. They want to invest. They send a term sheet. All done in a suspiciously quick manner. They don't know what questions to ask, and they are not very good at expressing themselves.
The term sheet says the startup has to buy some kind of ancillary service, like insurance or something like that, for a small amount of money compared to the millions that are about to be invested.
This is the scam, they aren't real investors, they want you to think by paying some small fee you unlock some investment.
For someone in a 3rd world country it can be worth the time, talking a few hours to various startups to scam them out of a few grand. Heck it's even worth it for this guy in the article, who is in the UK.
> For someone in a 3rd world country it can be worth the time, talking a few hours to various startups to scam them out of a few grand. Heck it's even worth it for this guy in the article, who is in the UK.
That shouldn't really be a surprise. Spending "a few hours" to earn "a few grand" suggests that you're making about $1,000 an hour. I'd like to be making $1,000 an hour.
Well I don't know what the hit rate is. I would imagine a lot of startups smell that the guy doesn't act like a real investor at all, but go along with the calls just to make sure. So a lot of those hours are wasted.
> For roughly six years, Davies ran a series of firms that pretended to offer insolvency services. Instead, he simply siphoned what little remaining money these companies had, spending the stolen funds on lavish cars, home furnishings, vacations and luxury watches.
Apart from the lavish cars, that fairly closely matches my experience with a real insolvency company we used when winding up our start up. Maybe he should just run a legitimate insolvency firm instead.
OK, but why mention the murder case when he was cleared? Are we supposed to think "obviously he did it because look at him"? Or is it supposed to prime our emotional response? It seems like the article could stand on its own without mentioning an irrelevant case which is bound to cause an emotional response.
Considering that his murder case was tossed because of eyewitness testimony from a foreign country that happens to be quite poor and ripe for corruption, it may not be that far fetched to think that he paid off some people to lie in his favour?
The world of private capital is a whisper network. You aren’t going to be able to Google your way to understanding how it works. A huge chunk of the people involved in that game are old money / trust fund / inheritance types who simply lack street smarts. Reputation is so important, and the laws so murky, that letting $50k go is a much better trade than admitting publicly you were swindled by a scammer. The rich are good targets for con men for all the above reasons and many more.
1. You are assuming a certain high-minded civic intent to explain things, holding that motive up as incompatible with psychopathy and therefore evidence against it.
2. There is a much simpler (and arguably more-plausible) motive which you didn't stop to rule-out, and it matters because that one is very compatible with psychopathy.
I don't think any legitimate investor is going to say you should pay for their due dilligence, and that's never happened in any of the situations I'm familiar with, which include several rounds across private offices, PE and VC firms small and large (and megalarge)[1]. If you think about it, for the target firm to pay for due dilligence would set up a direct conflict of interest - the due dilligence team has to be 100% working for the interests of the investor.
The problem here is he was paying finders fees for introductions from people who are probably legit and don't know what he was up to. So as a founder on the lookout for investment you might be inclined to trust him because the introduction would come through someone already in your network that you probably already trust (at least a bit). I could totally see how you might overlook if you are burning through your runway and someone seems to offer you a great deal, but you have to constantly be on the lookout for people out to shaft you in one way or another and this is something people might have spotted if they thought about it.
[1] Thinking about it, I've been in situations where fees of one kind or another get paid by the target firm when the deal closes but I don't think that's the same.