I am representing two individuals who had made an investment in a start up venture. The projections of the principals of the venture were, to be charitable, optimistic. The litigation resulting from this investment has been horrendously expensive (over $300,000 to date) and has taken a toll on everyone concerned. It is far better to do due diligence on an “Angel Investment” in advance. The article “Tips for the Aspiring Angel Investor” in a recent issue of The New York Times, which I attach a link to is helpful.

In addition, the venture seeking investors in a traditional private placement would be wise to prepare a disclosure document at least explaining the investment and outlining its risks.   The venture, its principals and its advisor in the aforementioned case have incurred significant legal fees in litigation of the matter over a period, so far, of almost four years.   On the other hand, I participated in drafting a private placement memorandum of a venture that went bust, therein explaining the investment and setting forth risks.   After the venture’s demise, an investor complained to a securities regulator. The regulator examined the offering materials and took no action against the venture, its principals or advisors. A properly drafted offering memo is pretty cheap insurance.

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