When deploying capital internationally, the biggest losses don't come from bad market timing or competitive pressure, they come from investing in companies that aren't what they claim to be. This guide outlines 7 warning signs that a cross-border investment target may be misrepresenting its operations, finances, or assets. If you see 3 or more of these red flags, physical verification is essential before you wire capital.
RED FLAG #1: CUSTOMER CONCENTRATION DISGUISED AS DIVERSIFICATION
| What They Claim | What's Actually True | How to Catch It |
|---|---|---|
| "Diversified customer base across 20+ clients" | 80% of revenue from 1-2 customers | Interview top 5 customers directly |
| "Enterprise customers across industries" | Customers are distributors, not end users | Verify who actually uses the product |
| "Long-term contracts with Fortune 500" | Contracts are 30-day terms, no renewals | Review actual contract terms and payment history |
Why It Matters: If the anchor customer leaves, the business collapses. Acquisition value disappears overnight.
Risk Level: 🔴 CRITICAL - One customer departure = total loss
RED FLAG #2: FACILITY CAPACITY MISMATCH
| What They Claim | What's Actually True | How to Catch It |
|---|---|---|
| "State-of-the-art facility, 10,000 units/month capacity" | Equipment is outdated, 3,000 units/month actual | Physical facility visit, observe production |
| "Expansion-ready manufacturing space" | Empty warehouse with no equipment | Count machines, check power consumption |
| "Automated production lines" | Manual assembly, understaffed | Interview operations team, watch production |
Why It Matters: You're paying for capacity that doesn't exist. Growth projections are fiction.
Risk Level: 🟡 HIGH - Valuation based on false assumptions
RED FLAG #3: REVENUE SPIKE BEFORE FUNDRAISE/EXIT
| What They Claim | What's Actually True | How to Catch It |
|---|---|---|
| "300% revenue growth in last 6 months" | Revenue booked but not collected | Check accounts receivable vs revenue |
| "Product-market fit achieved" | Sudden spike right before valuation event | Compare revenue timing to fundraise date |
| "New enterprise customers" | Shell companies or related parties | Verify customers are real operating businesses |
Why It Matters: Revenue may be fabricated to inflate valuation. Post-deal, revenue collapses.
Risk Level: 🔴 CRITICAL - Potential fraud indicator
| What They Claim | What's Actually True | How to Catch It |
|---|---|---|
| "CTO led engineering at Google" | 6-month contractor role, not leadership | Reference calls to former employers |
| "CFO has 20 years Big 4 experience" | Worked at regional firm, not Big 4 | Verify employment with HR departments |
| "CEO has Harvard MBA" | Degree from unaccredited online school | University verification of credentials |
Why It Matters: If management lied about credentials, what else are they lying about?
Risk Level: 🟡 HIGH - Credibility destroyed, deal at risk
RED FLAG #5: INTELLECTUAL PROPERTY QUIETLY TRANSFERRED