Earlier quoted context omitted.
Investors will look at financial statements (in whatever sad form they exist at most startups), but they don't look at itemized expenses. They also expect lots of money to be spent. For example, let's say I wanted to take an expensive vacation. I would fly to Europe (1st class, of course), stay in nice hotels, and basically live it up. I would mark this down as a "recruiting expense", or "customer acquisition cost".…
I'm not sure if you're being tongue in cheek, but if not, honest question: aren't those examples of actual fraud rather than "just" frivolous spending?
Like everything it's a spectrum. Those are incidents of outright fraud, but most of it is far more gray. It's the boyfriend/girlfriend hired onto staff as an assistant who only actually comes into the office 3 days a week. It's the trip that's an extra day for no good reason.
That being said, I think much of the grayness is for a reason. Brutal frugality will choke a business nearly as much as overspending.