Grand Theft Venture Capital: My Nightmare Experience with a Predatory Venture Capital Firm

The following is the true story of my very first venture into a business partnership, and how everything went wrong due to a predatory venture capital firm making promises of funding they had no intention of keeping. The names have been replaced with initials, because while everything in this is true, I honestly don't have the patience or time to fight a false defamation/libel suit in court.

Many years ago, an associate we'll call "TG" approached me about starting a business with him. This business would have held college fairs across the country, utilizing technology to revolutionize the industry. I reviewed the business plan and it was a solid, a sure-fire success. Of course, the challenge was startup capital. However, he found a venture capital firm run by "JF" which was willing to invest with us for a reasonable amount of stake in the company. He provided me the initial contract, and after reviewing it along with my attorney, I was quite satisfied with the arrangement. Unfortunately, the original contract was never actually on the table.

The bait-and-switch funding

The original deal was that I would be 15% guarantor on a small business loan and in exchange I would have my own stake in the company for the same percent. However, as soon as we're ready to proceed with the loan, the venture capital firm informed us that all of the funding for the loans had been used up. But not to worry, we can get a business line of credit instead, for the same terms, through an associate of JF's, named "HG". As part of the agreement, 15% of the maximum credit amount would automatically be added to the amount owed on the line of credit. We were applying for $100,000, so the fee would be $15,000. We were under very tight timelines so all of the paperwork needed to be squared away almost immediately, before the business line of credit was also used up. In hind sight, this sense of urgency should have been a red flag.

So once again, I reviewed the paperwork. I decided to forego the attorney review since the contract hadn't changed very significantly. I even double and triple checked, this was an application for business credit. So I submitted the application and we continued with the business planning. Going through the technology planning, I'm informed that JF is going to setup a website for us for $5,000. Through WIX. I was livid. Not only do I despise the quality of WIX websites, but charging $5,000 for a website through a host that's designed to be DIY was outrageous. Then I'm informed that JF is also going to charge us $35,000 for a very basic mobile app - which I could in fact just build myself for far less. We decided to table this conversation for now until after the funding had been secured.

Why do you want my username and password?

But then some very strange asks started coming down the pipeline and made those two budget items ultimately irrelevant. HG informed me that he needed me to open an account with a credit monitoring company, and provide him the username and password of the account. I absolutely refused. I told him I'd be happy to give him a copy of my current credit report if there were concerns, but under no circumstances was I giving him access like that. Finally after much deliberation he agreed that he could open the line of business credit without the account, since I have a good credit score.

Next I started getting notifications that credit cards were being applied for in my name. A bit confused by this, I contacted JF to find out what was going on. JF informed us that the line of credit was being collateralized by HG, but being opened with "the institutions that hold HG's money", and that the 15% fee was going to be the payment due to HG for opening the accounts, but not to worry because they were still business lines of credit and it was just my name on the accounts. Once again, another red flag, and at this point I was close to pulling out of the deal. But, I believed in the idea of the business so I stayed the course.

Credit where credit's due

This all seemed to be going well until I started getting phone calls from credit unions about my personal credit cards and that they wanted to verify I lived in their state. Not only did I inform them that the credit cards were only supposed to be business credit cards, but I did not meet the residency requirements for the credit union anyway, and had no idea why the funding company applied for those.

I contacted HG, who informed me that there was never any plan to open business credit cards, that all of the cards were unsecured personal credit cards. So not only did JF lie when he said that HG was collateralizing the cards, but both HG and JF lied when they said the cards were going to be a business line of credit.  I expressed concerns to TG and JF about all of this, and ironically, JF sent a message to myself and TG that he was becoming concerned we weren't committed to this deal, because he only wanted to work with partners who are "open and transparent." Given all of the deception involved in all of this, I made some very angry remarks to TG about everything, and informed him that I was likely going to be cutting ties.

At this point, I instructed HG to cease and desist all credit applications, and informed JF that all of the cards I had started to receive would be cancelled. I also sent JF and HG a copy of the contract, clearly outlining that the contract said business line of credit, and that as such I would not be paying the 15% fee. At this point, I refused to do business with JF or HG, and pulled out of the deal completely.

In hindsight, I should have pulled out much sooner. The aftermath of this was my credit being completely destroyed for a year, until all of the personal credit cards were removed from my account.

TG, JF, and HG, where are they now?

As it's been almost a decade since this deal went south, I decided for my own curiosity's sake to check up on TG, JF, and HG, to see where they are now and if the college fair business ever got off the ground with another partner.

• TG, who was to be the President of the college fair business, had some marital problems shortly after the funding deal fell through. This resulted in his wife moving out, and TG using a fake name to file false complaints with the police that his wife's family were selling drugs out of their residence. TG was arrested by the county sheriff's office and charged with 40 counts of making false statements to police, then released on an unsecured bond, ironically, for $15,000. Instead of facing the consequences of his crimes, he fled to Texas where he still lives today, while Maryland still has an open warrant for his arrest should he ever come back to the state. This does make me sad though, and I have no ill will towards TG, as he was just as much a victim as I was. However, given his following legal troubles, I'm very glad that he and I weren't business partners anymore.
• HG was indicted in 2022 for conspiring to fraudulently obtain almost half a million dollars in SBA funds through identity theft of multiple victims with one count of conspiracy to commit wire fraud, three counts of wire fraud and two counts of aggravated identity theft. He and his co-conspirators allegedly sent part of the stolen funds to the Dominican Republic. He faces up to 20 years of prison for each count of wire fraud.
• JF is the only person out of all three to not find himself in trouble with the legal system, but barely. According to what I've read, JF started stealing finance articles written by others, adding his own name, then publishing to other news sites as well as his own site. Once exposed, JF ended up closing his venture capital firm completely, and opening a new one under a completely different name.

Lessons learned, almost the hard way

I'm very fortunate that the only loss I suffered from all of this was my own credit score, which quickly recovered. Looking back and reading of others' experiences with JF and HG, I've very fortunate that I had the wisdom to scrutinize every aspect of the funding deal as it took place, and back out when I did. Had I continued, I have no doubts that this deal would have destroyed me financially, while HG sent my "fee" to the Dominican Republic to fund who knows what kind of criminal enterprise. I have no doubt that karma will eventually catch up with JF, but for now I will remain silent regarding JF's true identity, just because I don't want to deal with the potential legal drama.

So, if you're thinking of working with a venture capital firm to fund your startup, do your homework, and scrutinize every detail. Your finances, and your family, will thank you.