Security awareness: Five ways entrepreneurs can stay secure when fundraising
If you are a founder looking to raise funds, it is often easy to overlook the security and privacy concerns that come with this unique scenario. We have put together five recommendations to help you navigate this process securely. These recommendations will be most relevant for founders who are seeking funds from non-institutional angel investors.
Note: These recommendations are intended to enhance your current knowledge about online safety.
Protect your documents
Investors typically won’t sign a non-disclosure agreement (NDA) until you reach the due diligence stage. Sharing the pitch deck, business plans, and sometimes even the financials are risks you cannot avoid. However, you can use a free digital rights management program like Microsoft RMS for individuals for peace of mind.
Don’t reveal trade secrets on investor platforms.
Most crowdfunding or angel investor platforms are developed by outsourced companies and do offer minimal security. Furthermore, the platform provider/developers may not have enough resources to vet angel investors. Keep your executive summary and pitch deck short. Share your overall concept, but not your trade secrets.
Get to know your potential investors.
Once you are past the introduction stage with an interested investor, you will likely have to send additional materials. Always request a video conferencing session with the investor and their team before sending more materials, especially those that reveal more of your trade secrets. You should also research the investor and their company. Always be courteous and professional in your conversations with investors.
Ask your investors to provide referrals.
During the due diligence process, you should ask your investor to provide you with at least two referrals. The purpose of these referrals is to verify that the investor is genuine and not just looking to make a quick buck. Make sure your referees are associated with the investor for more than 18 months. Most serial investors will be happy to provide you with referrals.
Verify funding before issuing certificates
Do not issue investment certificates or other legal documents before the funds are deposited in your bank account. If you and the investor have agreed upon milestone-based funding, ensure there are enough clauses in the binding agreement to safeguard your business when it gives away equity without receiving the fund.