For founders there is (imo) a really strong red flag that you should be on the lookout for. He insisted founders paid for "due dilligence" to be conducted by a

For founders there is (imo) a really strong red flag that you should be on the lookout for. He insisted founders paid for "due dilligence" to be conducted by a firm he covertly controlled and when they paid the fees that firm evaporated with the cash. I don't think any legitimate investor is going to say you should pay for their due dilligence, and that's never happened in any of the situations I'm familiar with, which include several rounds across private offices, PE and VC firms small and large (and megalarge)[1]. If you think about it, for the target firm to pay for due dilligence would set up a direct conflict of interest - the due dilligence team has to be 100% working for the interests of the investor. The problem here is he was paying finders fees for introductions from people who are probably legit and don't know what he was up to. So as a founder on the lookout for investment you might be inclined to trust him because the introduction would come through someone already in your network that you probably already trust (at least a bit). I could totally see how you might overlook if you are burning through your runway and someone seems to offer you a great deal, but you have to constantly be on the lookout for people out to shaft you in one way or another and this is something people might have spotted if they thought about it. [1] Thinking about it, I've been in situations where fees of one kind or another get paid by the target firm when the deal closes but I don't think that's the same.