I continue to tell investors that I have $400,000 committed, when in reality I have zero. I worry what will happen if I bring someone in under these false pretenses and can’t raise the rest.


  • If money has not been put in by a third party already; I would start backing away now… And regroup.

    Take it as a life lesson. The deeper you go, the messier it will get. Like the person commenting above, you could end up in something serious.

    The last thing you want to do is lose any goodwill and reputation you have built up; investors will do due diligence.

    It’s one thing to hype your deck but another to say you have that level of commitment going in the business.

    I can see why you said it, as it is attention grabbing and investors like skin in the game.

  • First, I would recommend you never make false statements to anyone, particulary those who trust you enough to invest in you and your idea. However, IF you’ve already made the misrepresentation to the investor AND if he’s decided to invest,,PLEASE DON’T SPEND ANY OF IT–NOT ONE DIME ! Deposit the funds into an escrow account and promise your investor you won’t use any of their funds until the balance gets funded and you can truthfully say you’ve raised the initial $400,000. If the $400K doesn’t arrive within a few days (at most a week) after your investor has deposited funds with you, I would quickly let him/her know that things fell apart and return the funds. Otherwise I think you might be playing with fire, i.e., setting yourself up for civil and criminal exposure for securities fraud. Lying to investors is dangerous, illegal and will destroy your integrity forever. Just my two cents worth.

  • To play devil’s advocate – this is a very common practice in the valley. And most VCs know it. So your fears are probably over exaggerated. Fundraising is a jump first game – and investors do back out. Take it for what it’s worth, but I have seen this pulled off but it’s very risky unless the first person to commit has a lot of clout and you can shop their name around.

    • +1 Nobody believes you anyway. Everyone does this and the irony is that if it works, then it will be “true” and you just keep pitching and lock down the whole amount.

      No one is going to give you the money unless the others “committed” follow through and these kinds of commitments fall apart all the time even when they are real.

      So worst case scenario, if you get interested investors you say that the initial investor dropped out and see what they do with that. It is usually a bad signal to them but who knows…

  • Integrity issue, not a funding issue. I’d explore why you feel you can’t raise the money based on your ability, team, product, etc.

  • Not an integrity issue… Few investors, even myself want to be first (only) investor. Some folks like to hear you have traction. Never spend any funds until you raise the total amount necessary to begin. If you cannot get there and decide you can make a go of it with less… you have to explain this and gain approval form every committed investor first.

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