Beware of Online Scams Targeting New Entrepreneurs

There is no doubt that entrepreneurship is just about the only option for many unemployed South Africans to become economically active. Jobs are scarce and constantly being shed but there is plenty of opportunity for an innovative mind. If you are looking for such an opportunity, you may find the promise of quick and easy money through a range of Ponzi and pyramid schemes that has sprouted up in South Africa over the past few years.

Scams Masked As Legitimate Opportunities

The fact that you are a new or first time entrepreneur does not mean that you should be a naive entrepreneur. It’s a matter of common sense and the old addage “if it sounds too good to be true then it usually is”. This applies most of the time for just about everything in life, and especially when it comes to money.

Scammers know this and so they cleverly mask their schemes as a range of different legitimate products, such as savings or investment schemes with unrealistic returns, stokvels (traditional saving schemes), network marketing, and IPOs (share options). Do not be fooled.

While savings and ivestment vehicles, stokvels, network marketing and IPOs are legimitate financial entities, these scams are not. They may offer an initial return just to get more people into the scheme and then eventually collapse.

Often the collapse is blamed on banks who are trying to maintain a monopoly, the government and its capitalist backers or some unknown ‘third force’ who fleeced the scheme of the money. The bottom line is that the scheme never was sustainable and the only people who profited from it were the founders and those that got in early.

New Trends in Online Entrepreneur Scams

Targeting an eager, and at times desperate, entrepreneur is the preferred market segment for some of the newer scams in particular. You will hear about cryptocurrency, peer-to-peer lending or crowdfunding, online forex trading and competitive gaming. Once again these are legitimate technological developments which offer lucrative returns if you got in early. But South Africans have been a bit late to get on board.

Cryptocurrencies

Bitcoin mining is no longer profitable. The equipment needed and the amount of power expended to mine a single ‘coin’ costs more than the value of that coin. So scammers have instead started selling shares in Bitcoin ‘mines’ knowing all too well that Bitcoin mining is not lucrative.

The heyday of Bitcoin mining was between 2010 and 2013 but these scams continue to perpetuate in South Africa in 2016. It has a lot of similarities with the Californian Gold Rush in the 1800s.

Creating your own cryptocurrency is not difficult these days but there are almost 700 different types of cryptocurrencies available today. Most have little to no value and are hoping to someday match the hype and value of Bitcoin. The value of cryptocurrency depends on supply and demand. If there is no demand, where is the profitability in the supply chain?

Competitive Gaming

Competitive gaming is not a new kid on the block but South Africans are still unfamiliar with the concept. It involves participants playing against each other for prize money. There is still some debate as to whether it should be considered as gambling but proponents are quick to point out that is a matter of skill rather than luck. Please note that online gambling is currently illegal in South Africa.

While the concept of competitive gaming is in itself not illegitimate, there are scams that are going around enticing South Africans to buy into this opportunity. Money is paid out to participants who bring in new members and there is an attempt to explain this as a network marketing opportunity. Often it is not such an opportunity but a thinly veiled pyramid or Ponzi scheme.

This is yet another example of a legitimate concept being used by scammers and con-artists. It should not be a reflection of the competitive gaming industry itself.

Peer To Peer Lending

Peer-to-peer lending is just another way of exchanging money among participants outside of the formal banking and credit sector. One person lends to another person and earns interest by doing so. With scams pretending to be a peer-to-peer lending scheme, the interest promised is unrealistic and unsustainable.

The terms crowdfunding and social financial network is thrown in occasionally. Crowdfunding is a concept of informally raising capital for a new business idea through the contributions of individuals. These participants will either earn a share in the startup or be paid back with interest once the venture is sustainable.

Naive entrepeneurs are led to believe that they are investors, venture capitalists or shareholders by contributing to some of these schemes. In reality there is no product or service that is going to market. There is no legitimate startup. New people have to be constantly roped into the scheme to payout earlier participants.

Once again, crowdfunding in itself is not a scam. However, some scams pretend to be crowdfunding initiatives in order to dupe unsuspecting particpants to contribute to the scheme.

Forex Trading

Forex trading is a well established and legitimate business opportunity. As with an other business, it is by no means easy to generate a profit overnight. However, many scams in South Africa pretend to be legitimate forex trading platforms and courses with little to no value in the offering.

Some of these ventures are nothing more than affiliate marketing opportunities. The presenters earn revenue when a new participant signs up on a forex trading platform and deposits money into the trading account. While this commission structure in itself is not illegitimate or unethical, the presentation of forex trading to be a ‘secret’ opportunity only for those who have undergone an expensive course is untrue.

There are millions of forex traders across the globe who are working from their computers at home, trying desperately to make a profit. The markets are volatile and a host of geopolitical as well global economic factors makes forex trading tough to say the least. There is no ‘magic’ course that will turn anybody into a skilled forex trader overnight.

All That Glitters Is Not Gold

Ever noticed how these supposedly legitimate opportunities are presented? The presentations will always include slides or videos of large mansions, expensive sportscars, luxury beach resorts and private jets. Entreperneurs should be able to spot these scams from a mile away. Legitimate business opportunities do not rely on flashy presentations promising wealth. It focuses on the core product or service and the market opportunity.

It is also important to understand that if such opportunities were really a pathway to obscene wealth, would it then be available for a small startup cost of a few hundred to thousand rands? Would it be offered only on Facebook or at small community hall meetings? Would mainstream media not be talking about the potential of such an exciting new development?

Beware!

Another addage that will serve you well in business is “all that glitters is not gold”.

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