10 Startup Fundraising Scams to Know (and How to Avoid Them)
From term sheet frauds to fake VCs, here’s how to spot the red flags before they cost you time, money, or equity.
Why Startup Founders Are Prime Targets for Scams
Startup fundraising scams are more common than most founders realize.
When you're racing against your runway and juggling product, team, and growth, it's easy to miss the warning signs. Scammers know this. And they’re betting that urgency, ambition, and inexperience will cloud your judgment.
First-time founders are especially vulnerable. Many are new to venture capital. Legal jargon feels like a foreign language. There’s often no CFO, no legal counsel on standby. Just a small team doing everything. That’s exactly the kind of environment scammers look for.
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Why Trust-Based Cultures Are Easy to Exploit
Startups run on trust. You’re trained to build fast, lean, and relationships-first. So when someone shows up with a warm intro and a big check, it’s easy to assume they’re legit.
But trust-based cultures are vulnerable to manipulation—especially when the intro comes via email or a referral that hasn’t been vetted.
Remote work makes this even easier. A scammer with a fake LinkedIn profile, a convincing pitch deck, and a spoofed email domain can do serious damage—without ever stepping into a room.
Here’s a real-world example that could happen to any of us:
A SaaS founder gets a meeting with a supposed investor from a “family office.” The investor offers $1M and asks for a $5K “legal processing fee” to begin. The founder wires the money. The investor disappears.
Scammers thrive in moments of uncertainty, pressure, and rush.
This guide breaks down 10 of the most common startup fundraising scams—how to spot them, avoid them, and raise capital without raising red flags.
Table of Contents
10 Startup Fundraising Scams Founders Should Watch Out For
How to Vet Investors Like a Pro (Due Diligence Checklist)
Where to Report These Scams or Get Help
Wrap-Up: How to Protect Yourself When Raising Capital
1. 10 Startup Fundraising Scams Founders Should Watch Out For
Raising money for your startup is hard enough without someone trying to exploit your ambition. But the reality is that startup fundraising scams are evolving and getting more sophisticated. The good news is that most of them follow predictable patterns. Once you know what to look for, you can shut them down before they get close to your cap table.
Let’s break down the most common ones.
Scam #1 – Fake Investors with Inflated Promises
They’ve studied what founders expect to see. Sharp profiles, a few common LinkedIn connections, and confident talk about their "family office" or ties to a well-known VC fund. They’ll reach out warmly, sometimes over email, but more often through WhatsApp or LinkedIn DMs, and say they’ve been “tracking your growth” or that “you’re just the kind of founder we back.”
Fake investors in the startup world are playing a psychological game.
The compliments come first:
“You remind me of a founder we backed who just exited.”
“I’m moving quickly on a few top startups. Yours is one of them.”
Then comes the pressure:
“If you can confirm interest today, we can move fast.”
“I’ll get the team to draw up an NDA and soft commitment letter immediately.”
It sounds promising until you look closer.
Red flags to watch: 🚩
Unverifiable affiliations: They name-drop funds but don’t appear on the official team page.
No deal history: Crunchbase or AngelList shows no prior investments.
Pressure to jump on a call fast, often via WhatsApp or Zoom, without sharing basic documentation first.
Suspicious collateral: They send fake NDAs, templated
, or outdated investment materials.
What founders have reported:
Some scammers even send fake wire screenshots or ask you to sign a “preliminary” agreement, only to later demand a legal processing fee, citing compliance or due diligence protocols.
How to protect yourself from startup fundraising risks:
Search Crunchbase and AngelList for deal history. If there’s none, dig deeper.
Ask for references from founders they’ve backed. Speak to them directly.
Inspect email domains and WHOIS data. If they’re using Gmail or domains registered recently, take it seriously.
Never wire money or share sensitive information based on verbal promises or soft commitments.
Real investors expect you to run due diligence on them, too. If someone discourages that, walk away from one of the most common startup fundraising scams.
Scam #2 – Advance Fee or “Pay to Pitch” Schemes
This startup fundraising scam starts with a message that sounds exciting - a chance to pitch to “curated investors,” or join a high-profile startup showcase. All you have to do is pay a “processing” or “presentation” fee to lock your spot. The offer feels urgent. The upside feels massive. But the risk is real.
These schemes target founders who are early, hungry, and under pressure. They promise access, introductions, or exposure, but deliver vague results and no accountability. In most cases, once the payment is made, the promised investor network never materializes, or worse, turns out to be fake.
Watch for these red flags: 🚩
Upfront payment requirements for access to pitch events, advisors, or funding rounds
No clear deliverables, or terms that use vague language like “opportunity,” “visibility,” or “investor interest”
No refund policy, or one with restrictive, loophole-filled conditions
Hard-sell tactics, like “limited slots” or “we’re closing applications tomorrow”
How to protect yourself:
Ask for outcomes, not just promises: How many startups from previous cohorts actually raised money? From whom?
Speak to past participants: If they dodge this request, walk away.
Read the fine print: Look for refund clauses and measurable deliverables.
Remember this rule: Legitimate investors don’t charge you to pitch. If someone does, they’re not serious capital, they’re selling hope to the highest bidder.
These setups aren’t just predatory, they waste your time, your energy, and your momentum. The best investors invest in you, not the other way around.
Scam #3 – Convertible Note Traps and Unfair Terms
Convertible notes can be a useful tool for early-stage fundraising, offering a way to delay valuation discussions while securing capital. However, not all convertible notes are created equal. Some come with predatory terms that can cripple your startup down the line.
Common traps include: 🚩
Unrealistically low valuation caps: This can lead to excessive dilution when the note converts, leaving founders with a smaller equity stake than anticipated.
High conversion discounts: While some discounts are standard, excessively high discounts can be a red flag, indicating terms that heavily favor the investor.
Mandatory liquidity event timelines: Clauses that force a liquidity event within a specific timeframe can pressure founders into unfavorable exits.
Early repayment triggers: Terms that allow investors to demand repayment under certain conditions can strain your startup's finances unexpectedly.
These terms often come from entities posing as reputable investors, such as "family offices" or international angel groups, making them harder to vet.
How to protect yourself:
Scrutinize the term sheet: Don't let the simplicity of a convertible note fool you. Review every clause carefully.
Consult with legal counsel: Always have a lawyer experienced in startup financing review the terms before signing.
Research the investor: Verify their track record and reputation. Be wary of investors who are difficult to diligence.
Negotiate terms: Don't accept unfavorable terms under pressure. If an investor is unwilling to negotiate, consider it a red flag.
The goal of fundraising is to fuel your startup's growth, not to hand over control or equity under unfavorable conditions. Stay vigilant and ensure that the terms align with your long-term vision.
Scam #4 – Ghost VCs and Social Proof Manipulation
At first glance, everything checks out. The investor's website looks polished, their LinkedIn profile lists impressive credentials, and they even have a few mutual connections.
They mention backing successful startups and express keen interest in your venture. But as you dig deeper, inconsistencies emerge, and a common startup fundraising scam unravels.
These "Fake VCs" are master impersonators. They create a convincing front by:
Cloning legitimate VC websites with slight URL variations (e.g., replacing .com with .co or adding hyphens).
Fabricating team profiles using stock photos and fictitious names.
Citing non-existent investments or partnerships to build credibility.
Red flags to watch out for: 🚩
Inconsistent or recently registered domains: Use WHOIS lookup tools to verify domain registration dates and ownership details.
Lack of verifiable track record: Search for their investment history on platforms like Crunchbase or AngelList.
Generic or stock imagery: Authentic firms typically use professional photos of their actual team members.
Unverifiable testimonials or partnerships: Cross-reference any claims with official press releases or news articles.
How to protect yourself:
Verify domain authenticity: Ensure the website's URL matches the official domain of the purported VC firm.
Cross-check team members: Look up individual profiles on LinkedIn and confirm their association with the firm.
Consult trusted networks: Reach out to industry peers or mentors to validate the investor's legitimacy.
Be cautious with unsolicited offers: Genuine investors rarely approach startups without prior engagement or referrals.
Due diligence is a two-way street. Just as investors assess startups, founders must scrutinize potential backers to safeguard their ventures from fraudulent entities and from startup fundraising scams.
Scam #5 – Predatory Advisors and Fake Accelerators
This type of startup fundraising scam starts with the promise of mentorship, funding connections, and a fast track to success. But beneath the surface, some advisors and accelerator programs are more interested in extracting value from your startup than helping it grow.
These predatory entities often:
Charge exorbitant fees for participation, sometimes without delivering tangible benefits.
Demand significant equity stakes in exchange for minimal support or resources.
Lacking a proven track record, offering vague testimonials instead of concrete success stories.
Pressure founders to make quick decisions without adequate time for due diligence.
Red flags to watch out for: 🚩
Unclear program structures: Vague descriptions of what the program entails or promises of "customized" support without specifics.
Lack of transparency: Hesitation to provide details about past cohorts, success rates, or mentor credentials.
High-pressure tactics: Urgency to sign agreements or make payments without ample time for consideration.
How to protect yourself:
Research thoroughly: Look into the program's history, alumni outcomes, and reviews from other founders.
Seek references: Talk to past participants about their experiences and outcomes.
Consult legal counsel: Before signing any agreements, have a lawyer review the terms to ensure fairness and clarity.
Trust your instincts: If something feels off or too good to be true, it probably is.
Genuine advisors and accelerators are invested in your success and will offer support without compromising your startup's integrity or equity.
Scam #6 – Fake Due Diligence Calls
You're in the midst of fundraising when you receive an email from someone claiming to be an associate at a reputable VC firm. They express interest in your startup and request a call to discuss further.
During the call, they ask for detailed information - your pitch deck, cap table, financial projections, customer lists, and more. Eager to impress, you provide the requested documents. Then, silence.
These impostors are not genuine investors. They're data harvesters, seeking sensitive information under the guise of due diligence. Their tactics are sophisticated:
Impersonation of legitimate firms: They use email addresses and LinkedIn profiles that closely resemble those of real VC firms.
Urgent requests: They pressure you to share information quickly, citing tight deadlines or exclusive opportunities.
Lack of transparency: They avoid answering detailed questions about their investment process or providing verifiable references.
Red flags to watch out for: 🚩
Unverified identities: Check if the individual is listed on the firm's official website or has a credible LinkedIn profile.
Generic email domains: Be cautious of communications from free email services rather than official company domains.
Inconsistent communication: Frequent changes in contact persons or communication channels can indicate deceit.
How to protect yourself:
Verify the individual's credentials: Cross-reference their information with official company listings and professional networks.
Limit the information shared: Only provide sensitive documents after establishing the legitimacy of the investor.
Use secure channels: Share documents through secure platforms that allow you to track access and revoke permissions if necessary.
Consult with trusted advisors: Before sharing critical information, seek advice from mentors or legal counsel.
Scam #7 – Fabricated “Soft Commitments” to Build FOMO
In the high-stakes world of startup fundraising, the fear of missing out (FOMO) can cloud judgment. One type of startup fundraising scam exploits this by fabricating "soft commitments" from supposed investors to create a false sense of urgency and legitimacy.
These fraudsters claim that prominent investors are already on board, suggesting that your startup is the next big thing. They may reference well-known firms or individuals, asserting that these entities have expressed strong interest or have committed funds. The goal is to pressure you into making hasty decisions, such as signing unfavorable terms or sharing sensitive information, without proper due diligence.
Red flags to watch out for: 🚩
Unverifiable investor commitments: Claims of interest from investors that cannot be substantiated through official channels or public records.
Pressure to act quickly: Urgency to close deals or share information based on these supposed commitments.
Lack of documentation: Absence of formal term sheets or written expressions of interest from the mentioned investors.
How to protect yourself:
Verify investor interest: Reach out directly to the investors purportedly involved to confirm their commitment.
Seek documentation: Request formal term sheets or letters of intent to substantiate claims.
Consult your network: Discuss the situation with mentors, advisors, or peers who may have insights or connections to the mentioned investors.
Trust your instincts: If something feels off or too good to be true, take a step back and reassess.
Genuine investor interest is accompanied by transparency and verifiable actions. Don't let fabricated commitments and the fear of missing out drive you into making decisions that could jeopardize your startup's future.
Scam #8 – Pump-and-Dump PR Promoters
Every founder wants exposure. You’re building something bold, and the right media spotlight or investor intro could change your trajectory. That’s where shady PR promoters come in, offering big promises, vague deliverables, and a polished pitch designed to extract money upfront.
Here’s how this type of startup fundraising scam typically goes:
A self-proclaimed “startup PR expert” or boutique agency promises to get you in TechCrunch, Forbes, or connect you to “active angel investors.” They’ll name-drop journalists, show you past headlines (often unrelated), and ask for a hefty upfront fee to “kick off the campaign.”
Once you pay, communication slows down. What you get, if anything, is a templated press release and maybe a backlink on a no-name site.
Red flags to watch for: 🚩
Guaranteed media placements: Credible outlets don’t work this way.
No real case studies: Just screenshots, vague claims, or dead links.
Upfront-heavy contracts: With no results-based milestones.
Overuse of urgency: “We have a slot this week if you can lock it in today.”
How to protect yourself:
Ask for real client references and follow up.
Look for proof of results, not just where a client was mentioned, but what it led to.
Avoid 100% prepayment. Tie payments to real deliverables.
Make sure everything’s in writing - timeline, deliverables, ownership of content.
Real PR takes time, credibility, and trust. If someone’s selling overnight fame or instant investor access, they’re selling fiction. Protect your brand, and your budget from this common startup fundraising scam.
Scam #9 – Unverified Crowdfunding Portals
Crowdfunding sounds like a dream - raise capital, build hype, validate your product, all at once. But not every platform is what it seems. And some are outright scams.
Here’s how it plays out. A sleek website promises a fast, founder-friendly way to launch your campaign. You sign up, upload your pitch, and start sharing. But behind the scenes, the platform isn’t registered, isn’t secure, and sometimes… isn’t even real. You might never see the money raised. Or worse, they harvest your data and vanish.
Other times, it’s the campaign runners themselves who are fake. They clone product concepts, run shady listings, and disappear after collecting funds, leaving your brand tied to a fraud you didn’t even know about.
Red flags to watch for: 🚩
No visible track record. No real companies funded, no names, no verifiable campaigns.
Generic team pages or no team listed at all.
Pressure to launch quickly with “limited-time exposure” or “top placement offers.”
Sketchy terms of service that don’t guarantee fund delivery or data protection.
How to stay safe:
Research the platform: Check licensing, reviews, and past campaigns.
Verify the team behind it: Real people, with real LinkedIn profiles and a history of execution.
Read the payout structure and security policy: If it’s vague, walk away.
Don’t hand over too much data just to “register interest.”
Crowdfunding works best when trust and transparency are baked in. If a platform can’t give you both, it’s not the one to bet on.
Scam #10 – Equity Grab via Strategic “Partnerships”
It starts innocently enough - a former colleague or industry contact reaches out, expressing admiration for your startup and offering mentorship. They claim to have valuable connections, experience, and resources that could propel your venture forward. The catch is that they want a significant equity stake, say, 36%, in exchange for their guidance.
Red flags to watch for: 🚩
Exorbitant equity demands: Requesting a large stake upfront without proven contributions.
Vague promises: Offering access to networks or resources without concrete plans or commitments.
Sudden involvement of unknown parties: Introducing new individuals into the deal without prior discussion.
Resistance to performance-based agreements: Avoiding contracts that tie equity to actual results.
How to protect yourself:
Insist on clear, written agreements: Outline roles, responsibilities, and equity distribution based on performance milestones.
Conduct thorough due diligence: Research the individual's background, past ventures, and reputation in the industry.
Seek legal counsel: Consult with a lawyer to review any proposed agreements or partnerships.
Trust your instincts: If something feels off or too good to be true, it probably is.
Genuine partnerships are built on mutual respect, transparency, and aligned goals. Protect your startup by ensuring that any collaboration enhances your venture without compromising your vision or control.
2. How to Vet Investors Like a Pro (Due Diligence Checklist)
Raising money is one thing. Partnering with the right investor is something else entirely. A great investor will challenge you, open doors, and back you through hard turns. A bad one will drain your time, slow your growth, and make you regret taking the money.
Here’s how to run your own investor due diligence, like a pro.
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