You don't need to prove that the other party will scam you. You can't, because they didn't scam you yet.
But you don't have to prove anything. If you don't feel comfortable making business with someone, you can just say no. You are under no obligation to justify your decision to them. If someone wants to do business with you, then they need to prove to you that they are trustworthy.
What you are asked to do here is to invest money into a failing business in order to rescue it. What due dilligence should one make before even considering such a deal?
- Does the company actually exist? Check the company register of the jurisdiction where they claim to be. Verify this independently, not through your contact.
- If the company exists on paper, does it exist physically? Is there an actual office where they claim to be situated or is it just a mail box? Verify independently, not through your contact.
- If the company exists physically, does it actually do business? Do they have any customers or suppliers? Do they exist? Verify this independently, not through your contact.
- Does your contact actually work at the company? You can do that by trying to reach your contact using the information from the company registration. If you call the company and they haven't heard of the guy (or they have a guy by that name but that guy doesn't know who you are), then your contact is an imposter.
If you find out that your contact deceived you about any of these points, then that's a red flag.
But even if you did check all these things and they all check out, then you still need to answer an even more difficult question: Is it actually a worthwhile investment? It might be an actual company full of hard-working people with an owner who has nothing but the best intentions, but that doesn't guarantee that the company has any future. There is no point in investing into a company which will go bankrupt anyway, with or without your capital. If you invest money into a company and that company goes bankrupt, your money is gone.
How can you find out if a company is a worthwhile investment? Well, there are very smart people with decades of experience in the investment banking business and they too judge poorly from time to time. But part of their decision process are things like this:
- How do their books look? Do they have a stable customer base which provides a reliable stream of revenue? Did they make profits in the past years? And are those books checked by a reuptable independent auditing firm which confirmed that they tell the truth?
- Do they have a business plan for the next years? Does that business plan have any chance to succeed? In order to judge this you need a lot of expertise in the market they operate on.
- Do the people who manage the company know what they are doing?
- How do they pay you back? Is it a loan they pay back with interest? Do you buy equity in the company and get a cut of their future profits? How does that return of investment compare to other investment options?
