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Here are four red flags you cannot ignore:
- Unwillingness to answer questions directly. Honest people answer questions directly. Period. If you ask about customer interest in a product, and the answer starts with, "We are talking to...," that means there are no committed customers. A company needs to be honest about where they are in their sales process, because it is key to revenue generation.
- Any roadblocks to due diligence, especially the phrase, “We need to stay stealth.” Anything that hinders your due diligence is a problem for your decision-making process and for your potential partner’s ability to raise capital down the road. You want to know that your would-be partner has clean financials and truly owns any intellectual property he or she claims to have. Any savvy investor would want the same assurances. I've seen the "we need to stay stealth" excuse used to obfuscate patent assignment issues that later became a nightmare. Don't fall for it.
- An opportunity that is so 'hot' that other people aren’t asking the right questions. It's easy to be taken in by people who manipulate details to create the illusion of massive momentum. Their ultimate goal is to get others to come to rash decisions, without asking too many questions or negotiating. Only later will you discover that the reality doesn’t match the pitch: the funding hasn’t actually closed, the other team members haven’t actually committed, and what was billed as product development is really a science project with titanic levels of technical risk.
- A would-be partner who acts as if their title or status as a media darling should put all your concerns to rest. Just because someone has a prestigious chair at a top university or is frequently featured in the media does not mean you can trust them, unfortunately. Only some people get to the top because of their own brilliance. Enough said. "
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