Should a Angel Investor ask a entrepreneur for funds to show commitment for a investment?

September 18, 2009 by · 2 Comments
Filed under: angel investing 

I am working on a getting a business up and going, An angel investor has taken my business plan and wants to invest in my business, He has stated in the contract he would take 10% of the business while the contract is active, which i have no problem with, plus I would pay him 2% on all monthly sales plus interest. I have no problem with that either..I wonder if I am getting the short end of the stick, by the angel investor asking me to pay for lawyer fees on his end for court cost? Is there a way I can deal with this..I really need the investment.

By any chance does the contract look something like this:

1. The investment fund/capital to come as long term loan facility.
2. It will mature in five years for repayment.
3. Investor and Entrepreneur to sign a contract and engage a UK based attorney for this purpose.
4. A UK based attorney to prepare the draft copy of the contract and provide legal services to Investor and Entrepreneur in accordance with the laws in UK that requires the attorney to come from where the Investor and the bank are domiciled.
5. The draft copy to be reviewed by investor and entrepreneur and inputs made where necessary.
6. The attorney to produce a clean copy of contract for the endorsement of the investor and entrepreneur.
7. The endorsed copy to be notarized by the attorney in the British High Courts
8. Attorney to file notes with financial regulatory authorities and obtain approvals for fund transfer as proof that the capital/fund has no relationship with money laundering and terrorism.
9. The investor has located a reputable UK based legal firm and would recommend them to the entrepreneur for follow up. The contact information of the attorney is to be forwarded to the entrepreneur.
10. 10% interest on the capital (compounded)
11. 20% net profit sharing of the company at year end during the life span of the capital loan.
12. 40% equity holding in the company upon providing the investment funds/capital to serve as collateral.

Etc. etc.

If, so, it’s a complete scam, and you should run, not walk away. For starters, you and the investor never, never, NEVER share one lawyer! And that’s just the very, very least of the problems here.

Good luck!

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