I have two potential investors: 1) My uncle - a trusted and wealthy family member and 2) "M.S." an unknown person that approached me after having heard my pitch and was "instantly enamored with my concept"
M.S., although basically being in retirement, runs a company that coordinates the mergers of medium size, and medium age companies - basically giving them an exit strategy. However, he heard my social networking pitch and was very taken by it because he had seen the problem I was addressing so often in his life. Even thought this was out of the scope of his normal work, he is interested (despite being 70+) and he believes that his partners (mostly retired CEOs including the former CEO of Crest toothpaste) will also be interested. He has a doctorate in economics, taught at X-town University, and travels too and fro lecturing.
...Next time I meet him, he is still interested (although the other partners are not as interested as he first thought they would be - they tease him for being too easy to help strangers) and he wants to bring in some of his own people for "sweat equity". He says he has a lawyer that could do some of the work in return for a stake in the concept. He says that he has a software development house that can do some of the work... in return for equity. He talked a lot about himself and his adventures in business, and I talked very little. He told me some of his ideas for the future of my concept... but everything was vague. He's an older gentleman, so fine - I respect my elders.
I explained all of this to my trusted uncle, and I showed him the other M.S.'s credentials, and I showed him the other M.S.'s business web site and my trusted uncle said that he thought I was dealing with a con artist. He said that several years back he had been approached by a woman that said she was with a company that consulted medium sized businesses - she helped enable mergers of such companies. The more he spoke with her, the more information she asked for - what tax bracket was he in for example. She said that he paid too much in taxes and that her firm would be able to lower his taxes by $x for a y% cut - this was the con. My uncle turned her down, the next day she showed up in more sexy attire with the same story. He sent her away. Later, he had found others who had been taken in by the con. Apparently, the con artists give you what was promised by the contract, and they take their cut, but you loose through some other tax loophole - usually on the order of tens of thousands. After this first experience, my uncle has been approached by several with similar stories.
So... where does that leave me? There is still a chance that the old gentleman that I'm talking to is on the level. But I don't really know anything about him. He wants me now to sign mutual NDAs so that we can talk openly about our ideas. But, I ain't no dummy... this also means that I can no longer pursue my concept independent of M.S. However if he is a con artist, I still don't know his game. What does he (an old man) stand to gain by signing a couple of contracts with an unlikely business success like me?
How do I determine the truth? How do I keep from being conned? On the other hand, how do I take advantage of a good situation... if that's what this is?
Update Con artist! I asked my other investor, my well-to-do uncle, what his thoughts were, and after looking a M.S.'s web site he told me that this guy was not to be trusted. So that prodded me to look more deeply at his credentials. I found a bullet point in his bio that said he was owner and CEO of some company X that I had never heard of and that he sold it for $Y. It turns out that that company did exist, but in an official, and very descriptive, writeup of the company history, his name was never mentioned. Although there was mention of a different CEO/owner at that the same time.
After I found that I didn't check much further. Everything else now seemed to add up to the same answer. And like they always say, things are obvious red flags now in retrospect.
So I definitely lost an investor... but the fact that my first investor was a con-artist also seemed to have the effect of cooling off my other investor.
