How do you avoid most of these? Whenever possible, only accept investments from individuals in credible, professional angel investing organizations - not people who solicit you. Even then, do your own due diligence in the business community. Ask what other companies they've invested in, and talk to the CEOs of those companies to find out what kind of investor they've been.
Also, make sure your lawyer writes the initial investment document or term sheet - not the investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. Not all angels these days are even trying to earn their wings.
Marty Zwilling is CEO & Founder of Startup Professionals Inc.
