In our brave new world of unlimited profitability, decentralisation of financial instruments and tremendous return expectation, it’s hard to instantly spot a black sheep, and, blinded by a quick return prospect, one might be tempted to risk going in versus missing out on a lucrative, and, usually, extremely time limited, opportunity.
Below a checklist of 10 “deal breakers” to watch out for I find useful, and apply generally even before accepting a request for a conference call.
- Find a legal entity behind offer/product/investment opportunity and look it up using corporate registries. These are in many cases open, or, easy to request an extract from;
- Check whether ownership/management structure matches public information (you might just find that a person listed as Chairman never heard about the company) – use LinkedIn, Crunchbase, AngelList;
- Do you understand an explanation on how your money will generate profit? Ask yourself: would you, with an ability to create these returns, ask for money?;
- How can you participate? If the injection methods are mostly in Crypto/Credit card payment/Cash/Electronic transfer area versus bank transfers – it’s a red flag: frankly it might mean, that the beneficiary has hard time explaining cashflows to their bank or passing KYC;
- Limits, vesting or grace periods at withdrawal are a “no-no” for retail grade investment products/opportunities. It is, however, reasonable if there is a pre-defined penalty on early withdrawals;
- Most activities, especially these, creating big returns, require licensing – whether it’s an investment fund, or tourism agency, most countries require companies to have a license to operate as such. Look up whether it’s in place and matches public record;
- Aggressive advertising campaigns with assurance of guaranteed profitability (prohibited in most jurisdictions);
- Absence (or a very downplayed description) of investment risks (same as above – most jurisdictions require this by law);
- Active utilisation of 3rd party client databases/cold calling/high incentives attract additional funding yourself;
- Product/company promotion by individuals/public figures/KOL’s, who have no clearly established experience with the product (paid bloggers/youtubers/celebrities, who, most likely, would never use it in first place (extreme example: Lady Gaga promoting crypto mining)