Curious why the investors didn’t do any diligence like requiring an audit as a condition for funding. We saw the same thing with Theranos.
[deleted]
SEC charges YouPlus and CEO with defrauding investors
21–27 of 27 posts
Re: SEC charges YouPlus and CEO with defrauding investors
#22What is the mentality here? SV investors are quite accomodating of people investing in building a decent product even if it's not making any revenue or isn't being adopted fast. Why lie?
Re: SEC charges YouPlus and CEO with defrauding investors
#23Sadly in most cases like these, the money's largely gone and very little is left to make any 'round' of investors whole (usually the latest round comes first).
A number of comments are asking why the investors do due diligence in checking the numbers.
Before Series A (i.e. seed, seed+, bridge), asking for audited financials is quite uncommon. The startup investment space largely works on trust, honesty, and speed. It also works on 'stamps of approval', previous ventures, accelerators (500, YC), investor networks (gain one, you gain a few others by association).
It's easy to say, they should always ask for diligence/auditing, but that slows things down in a space where speed to delivery means something. Less time you can spend on fundraising the better and even w/o diligence you can spend way too much time fundraising.
Not saying it's perfect, but it's the side of the double edge sword that's in play. If defrauding happens too much then enough bad eggs will have ruined the pot and audited financials will be required as a general practice.
Re: SEC charges YouPlus and CEO with defrauding investors
#24Curious why the investors didn’t do any diligence like requiring an audit as a condition for funding. We saw the same thing with Theranos.
I think this founder particularily has history of exits, atleast on his LinkedIn. They might be just buying the story more than the details?
Re: SEC charges YouPlus and CEO with defrauding investors
#25Honestly the investors are morons. Who doesn't do due diligence before investing? This communication says that the CEO only produced the false bank statements when he was pressed about it. Seems like somebody snapped out of it, did the due diligence that should have done in the first place before signing a check, and realized that this was all smoke and mirrors.
>Who doesn't do due diligence before investing?
Theranos managed to suck in billionaires like Rupert Murdoch, Tim Draper and Larry Ellison, executives at Safeway, the Walton Family and others. All without working technology or a single peer-reviewed paper regarding their work.
It happens all the time, and is happening as we type this. How?
Re: SEC charges YouPlus and CEO with defrauding investors
#26Curious why the investors didn’t do any diligence like requiring an audit as a condition for funding. We saw the same thing with Theranos.
> why the investors didn’t do any diligence like requiring an audit This is an unusual ask. Founders forging bank statements simply isn’t common enough to merit it.
At a previous company, we had it as a requirement for the round. Didn't bother us because our book were clean and our growth wasn't fabricated. Company had a successful exit by an acquisition .
At the current startup i am at, we do yearly audits that we share with our investors. We have nothing to hide and our growth is real.
If company doesn't want to do an audit, they are hiding something. Founders forging stuff is more common than you think. I've personally seen shady accounting at two startups like fake contracts were nothing of value was exchanged but saw the revenue booked. One of the startups was a vendor to homestore.com were the CEO went to jail cooking the book but we were never investigated being a private vc backed company. Though investors did fire the founders and executive team after they forced an audit. SEC prosecuting these cases is quite rare with privately held companies. This is the second case that i know of.
Re: SEC charges YouPlus and CEO with defrauding investors
#27I think it's wrong to rationalize what YouPlus CEO did to investors by saying he was like so many other people in startup culture; his actions don't represent silicon valley. I wish more people would call out startups like YouPlus when they take money from investors for the business they don't have and for the technology that only exists inside their heads.