When I lost my first startup, it wasn’t because of poor product-market fit or weak execution. It was because I didn’t understand how sophisticated investment scams worked. I trusted an “investor” who used a complex convertible note structure to effectively steal control of my company. Through our work at Do Not Work With (DNWW.io), we’ve documented hundreds of similar cases. Let me share what we’ve learned about protecting yourself from the most common scams targeting founders in 2025.

1. The Fake Fund Squeeze

This increasingly common scam involves “investors” who claim to represent legitimate venture funds but are actually orchestrating an elaborate squeeze play. They typically target founders who are running low on runway and desperate for funding.

Here’s how it works: The “investor” offers to lead your round with a term sheet that looks standard. They insist on an exclusivity period, during which you can’t talk to other investors. They then drag out due diligence while introducing small changes to terms, knowing you’re burning cash and becoming more desperate.

A founder in our network recently encountered this. The “investor” waited until they had two weeks of runway left, then demanded 40% equity at a devastated valuation, knowing the founder had no other options. They had orchestrated the entire timeline to create maximum leverage.

2. The Advisory Equity Trap

This scheme has become more sophisticated in 2025. “Advisors” target early-stage founders, offering expertise and connections. They ask for seemingly standard advisory shares (usually 1-2%), but the agreement contains cleverly worded anti-dilution provisions.

The real scam emerges during future funding rounds. The anti-dilution kicks in, but it’s structured to multiply their equity under specific conditions, which they then orchestrate. We’ve seen cases where these advisors ended up owning more of the company than the founders.

3. The Convertible Note Complexity Attack

This scam preys on founders’ lack of experience with complex financial instruments. The investor offers a convertible note with terms that seem founder-friendly on the surface. However, buried in the complexity are mechanisms that can trigger forced conversion under specific conditions.

One founder in our database lost control of their company because they didn’t understand how their note’s “qualified financing” definition interacted with a seemingly unrelated clause about board approval rights. The investor used this to force conversion at a minimal valuation, severely diluting the founders.

4. The SPV Shell Game

This sophisticated scam has emerged strongly in 2025. Investors create Special Purpose Vehicles (SPVs) that appear to be backed by well-known firms or angels. They use these to invest in startups, but the SPV structure contains hidden control mechanisms.

The real deception lies in how voting rights are structured within the SPV. While founders think they’re getting dozens of valuable investors, they’re actually giving significant control to the SPV manager, who can then leverage this power during critical company decisions.

5. The Strategic Partner Steal

This one is particularly devious because it masquerades as a corporate partnership opportunity. A larger company approaches you as a strategic investor, offering not just money but also partnership opportunities. The investment terms include detailed partnership agreements.

Hidden in these agreements are clauses that give them access to your intellectual property or customer data. They use this access to either compete with you directly or squeeze you into a forced acquisition. Several enterprise software startups in our network have lost their technology this way.

6. The Down Round Trap

This scam requires patience and sophistication from the scammer. They invest in your early rounds, gaining information rights. They then use these rights to quietly approach other investors, sharing selective negative information about your company before you start raising your next round.

This coordinated effort depresses your valuation, allowing them to increase their ownership percentage significantly in the down round they helped create. The manipulation is nearly impossible to prove because it happens through informal channels.

7. The Accelerator Asset Strip

A new variant of acceleration programs has emerged in 2025, targeting desperate founders. These “accelerators” offer funding and support but require startups to use their “preferred vendors” for all services – legal, accounting, development, etc.

The scam works through inflated service fees and kickbacks. The accelerator slowly drains your funding through their ecosystem of overpriced services, eventually leaving you with no cash and no choice but to accept their predatory follow-on investment terms.

8. The Cap Table Confusion Play

This scam exploits the complexity of modern cap tables and financing structures. Investors introduce multiple classes of shares with different rights and conversion mechanisms. They then create situations where these mechanisms interact in ways that are nearly impossible to model without sophisticated software.

During key company events (acquisition offers, new funding rounds), these mechanisms suddenly reveal their true impact, often forcing founders into losing positions. One founder in our network discovered during an acquisition that their actual ownership had been effectively halved through these interactions.

How to Protect Yourself

1. Always Run Independent Verification

Use DNWW.io to check potential investors’ history and patterns. Real investors will have verifiable track records and references from founders they’ve backed.

2. Get Independent Legal Review

Never use the investor’s recommended lawyers. Have your own counsel review every document, no matter how standard it seems. Pay particular attention to interaction effects between different agreements.

3. Model Everything

Use cap table management software to model out all possible scenarios, including worst cases. Pay particular attention to how different mechanisms interact under various conditions.

4. Create Time Pressure Tests

If an investor is pressuring you to move quickly, intentionally slow things down. Legitimate investors will respect proper due diligence. Scammers often rely on artificial time pressure to force mistakes.

The Future of Investment Scams

As startup financing becomes more complex, we expect to see even more sophisticated versions of these scams emerge. The trend is toward exploiting complexity and opacity rather than obvious deception. Protection requires constant education and strong networks of trusted advisors.

Remember: When something feels wrong, check DNWW.io for similar patterns. The best protection against sophisticated scams is learning from others who’ve already encountered them.