3 Common Startup Scams and How to Protect Yourself Against Them

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As someone running their own startup, you likely have a lot on your plate. Whether you’re chasing funding, actively recruiting new employees or integrating a new software system, it probably feels like you have no time or energy to worry about anything else. However, there’s at least one more thing that should be at the top of your priority list as an entrepreneur: informing yourself of security risks and protecting yourself.

Given that 82% of businesses reported experiencing fraud in 2018, it’s clear that scams are more prevalent than ever. Want to ensure your business’ success? This guide features three common startup scams to watch out for and some steps you can follow to safeguard your business against them.

1.  Insurance Fraud

Depending on the nature and industry of your startup, you could be at risk of experiencing various types of insurance scams. Common types of insurance fraud include premium frauds, false workers’ compensation claims, as well as property and casualty scams (i.e. slip and fall claims). Even though all startups must have an adequate business insurance plan in the event of such occurrences, they can still take a significant financial toll on the business’ bottom line. This is why it’s vital to ensure any claims made are genuine in nature.

2.  Equity Scams

In business dealings, you may encounter people who boast about their connections to various investors. However, they may place a condition on putting you in touch with these investors, such as requiring you to give up some equity in your business. This is a classic example of an equity scam, which targets startups and small businesses all too often. If you ever find yourself in this situation, refrain from giving this individual anything. Do not give them any equity, time or attention; chances are they’re only going to waste it and potentially put the well-being of your business at risk.

3.  Phishing Schemes

Phishing scams are attempts to obtain sensitive information (i.e. passwords, credit card details) by impersonating a trustworthy individual/entity in a digital communication, such as an email. These schemes are among the most common scams targeting startups and small businesses. In fact, in 2019, it was reported that startups were experiencing the same phishing risks as big corporations.

How to Protect Yourself Against Fraudulent Activity

Now that you know some of the most common types of startup scams, you may still be wondering: how can I protect my business? The answer is relatively simple: do your due diligence. Do your research into the factors that could pose a threat to the well-being of your company. Take the necessary steps and use the correct resources to protect your small business from fraud, such as the integration of a fraud management system and employee education.

If you suspect you’ve fallen victim to a scam, take action immediately by contacting an organization that specializes in domestic due diligence, such as Diligence International Group. These experts conduct in-depth research into your case to then supply you with a comprehensive, professional report with concrete conclusions. With their help, you’ll get a better picture of your case and gain the know-how needed to seek justice against scammers.

Clearly, startups are vulnerable to a number of scams, with many experiencing their unfortunate consequences. However, as long as you do your due diligence in protecting against fraudulent activity, your business doesn’t need to face these repercussions. Educate yourself and take the proper precautions, and you’ll set yourself on the path to success. 

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