A Final Word on Up-Front Fees

A colleague of mine posted this in a forum as a follow up to the discussion on up- front fees so given my previous posting I thought it appropriate to share his remarks. It seems like this chap has every right to be dead against any form of up-front engagement fee – read on; 

‘’I get every side of all these messages. The fact is that by the time an entrepreneur is completed what he/she is to complete to show competency and legitimacy most of us are broke and so are our friends, relatives and neighbours (or at least do not want to put any more in). Then we get to the funding and have to cut through fraud, thieves and such to get (hope to get) to the real people. Then they want 10% good faith money or they want fees for due diligence’’.

‘’Few if any I have met in the past 3 years were willing to put up references, proof of funds, etc so we just trust our gut and pass. At some point we either take a leap of faith and possibly get burned, OR it works out. For me, as I said above, I have been burned 3 times with the last one for $250k because they neglected to put the money in an escrow but rather operating funds and then got sued by another investor, never revealed to us they were in a suit and then shut down’’.

I have been doing this for 30 years. The reason for such an increase in fraud is simple, black market funding. The banks are closed up in the lending department for the most part. So the parasites come out and start feasting on our honest intentions. Today, more and more people are going to seminars to learn how to become an entrepreneur’’.

‘’What they are not learning about is how to get funded OR they just do not have a good plan and the investors are now collecting fees to pay their expensive car payments and house notes that were simple to do prior to 2 or 3 years ago. I am not sure what the answer is. People seeking funding, have to face the fact that it will cost some money to further but how to keep from getting ripped off is an entirely different matter’’. 

As I said in my earlier note – entrepreneurs with zero operating capital are vulnerable to these types of financial terrorists. I have always maintained that an entrepreneur with a good idea needs some pre-seed capital to allow him or his representative to market the project within credible circles. He or She needs to be able to attend meetings or pay for their representative to attend on their behalf once interest has been acquired. To expect to sell yourself and your project, without any walking around money is dangerous, and usually guarantees failure and frustration.

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