??? Faking Days Pau in Silicon Valley: Da Consequences Real Now

??? Faking Days Pau in Silicon Valley: Da Consequences Real Now

Faking it days stay ovah. Das da feeling inside Silicon Valley, wit one side serving schadenfreude an one pinch paranoia. ??

No moa funding fo’ da cash-burning start-ups in da last year. Now, fraud stay in da air, as investors looking moa close at start-up claims, an’ da tech downturn show who been taking da “fake it till you make it” kine thinking too far. ???

Check wat wen happen in da past two weeks: Charlie Javice, da foundah of da financial aid start-up Frank, got arrested, accused of faking customah data. Da jury wen find Rishi Shah, one co-foundah of da advertising software start-up Outcome Health, guilty of scamming customahs an’ investors. An’ one judge wen ordah Elizabeth Holmes, da foundah who wen scam investors at her blood testing start-up Theranos, fo’ start her 11-year prison sentence on April 27. ??‍⚖️?

Dem developments come aftah da February arrests of Carlos Watson, da foundah of Ozy Media, an’ Christopher Kirchner, da foundah of software company Slync, both accused of scamming investors. Still get da fraud trial of Manish Lachwani, one co-foundah of da software start-up HeadSpin, goin’ start in May, an’ dat of Sam Bankman-Fried, da foundah of da cryptocurrency exchange FTX, who stay facing 13 fraud charges latah dis year. ?⚖️?

All togethah, da charges, convictions, an’ sentences wen make da feeling dat da start-up world’s fast an’ loose fakery actually get consequences. Even wit dis generation get plenny high-profile scandals (Uber, WeWork) an’ downfalls (Juicero), no moa start-up foundahs, ‘cept fo’ Ms. Holmes, evah wen face criminal charges fo’ pushing da limits of business puffery as dey wen disrupt us into da future. ?️⚡?

Da funding downturn might be da reason. Unethical behavior can be moa easy fo’ look past wen times stay good, like how dey was fo’ tech start-ups in da 2010s. Between 2012 an’ 2021, funding fo’ tech start-ups in da United States wen jump eight times to $344 billion, acco’ding to PitchBook, dat tracks start-ups. Moa den 1,200 of dem stay considered “unicorns” worth $1 billion o’ moa on papah. ???

But wen da easy money go away, everybody go quote da Warren Buffett saying ’bout finding out who stay swimming naked wen da tide go out. Aftah FTX wen file fo’ bankruptcy in Novembah, Brian Chesky, da CEO of Airbnb, wen update da saying fo’ millennial tech foundahs: “Feel like we was in one nightclub an’ da lights jus’ wen turn on,” he wen tweet. ??‍♂️?

Befo’, da venture capital investors who wen back start-ups nevah like go aftah legal action wen dey wen get fooled. Da companies stay small, wit not much assets fo’ get back, an’ going aftah one foundah would hurt da investors’ reputation. Dat has changed as da unicorns wen fly high, pulling in billions in funding, an’ as moa big, traditional investors like hedge funds, corporate investors, an’ mutual funds wen come inside da investing game. ???

Mo’ money stay at risk, so it jus’ change da way tings goin’ work,” said Alexander Dyck, one professor of finance at da University of Toronto who specializes in corporate governance. ???

Da Justice Department also been telling prosecutors fo’ “be bold” in chasing moa business frauds, including at private start-ups. So, get charges fo’ foundahs of Frank, Ozy Media, Slync an’ HeadSpin an’ moa charges coming. ??‍⚖️?

IRL, one messaging app dat investors wen value at $1 billion, stay being investigated by da Securities and Exchange Commission fo’ maybe lying to investors ’bout how many users dey get, according to reporting from The Information. Rumby, one laundry delivery start-up in Ohio, wen allegedly make up one story of financial success fo’ get funding, an’ da foundah wen use dat money fo’ buy himself one $1.7 million home, according to one lawsuit from one of its investors. ?️??

News outlets also wen report unethical behavior at start-ups like Olive, one $4 billion health care software start-up, an’ Nate, one e-commerce start-up claiming to use artificial intelligence. One spokeswahine fo’ Olive said da company “disputed an’ denied” da reported allegations. ??️?

All dis stuff wen make one awkwahd time fo’ venture capital investors. Wen start-up valuations stay going up, dey been seen as visionary kingmakers. Stay easy fo’ convince da world, an’ da investors in deir funds — pension funds, college endowments, an’ rich individuals — dat dey responsible fo’ taking care of capital wit da unique skills needed fo’ predict da future an’ find da next Steve Jobs fo’ build ’em. ???

But as mo’ start-up frauds come out, dese big shots of da industry stay playing one diff’rent role in lawsuits, bankruptcy filings, an’ court testimonies: da victim dat wen get fooled. ?⚖️?

Alfred Lin, one investor at Sequoia Capital, one top Silicon Valley firm dat wen put $150 million into FTX, wen think ’bout da cryptocurrency disastah at one start-up event in January. “Not dat we wen make da investment, it’s da year-and-a-half working relationship aftahwards dat I still nevah see it,” he said. “Das hard.” ???

Venture capital investors say deir asset class stay among da riskiest places fo’ put money but get da potential fo’ big rewards. Da start-up world celebrate failures, an’ if you no stay failing, dey tink you no stay taking enough risks. But no stay clear if dat defense goin’ hold as da scandals become moa humiliating fo’ everybody involved. ???

Investors stay asking consultants like RHR International fo’ help find da signs of “Machiavellian narcissists” who stay moa likely fo’ commit fraud, said Eden Abrahams, one partnah at da firm. “Dey like tighten up da protocols ’round how dey stay checking foundahs,” Ms. Abrahams said. “We had

one series of events dat should be making us tink an’ learn.” ???

All dis stuff going on making one turning point fo’ da start-up scene an’ fo’ da investors. Da days of faking it, playing fast an’ loose, stay pau now. Start-ups an’ investors gotta be moa careful an’ honest if dey like succeed in dis new environment. Da consequences stay real, an’ da truth stay moa important den evah. ???

NOW IN ENGLISH

??? The End of Faking It in Silicon Valley: Consequences Are Real Now

The days of faking it are over. That’s the feeling in Silicon Valley, with a side of schadenfreude and a pinch of paranoia. ??

Not only has funding dried up for cash-burning start-ups over the last year, but now, fraud is in the air, as investors scrutinize start-up claims more closely, and a tech downturn reveals who has been taking the “fake it till you make it” mindset too far. ???

Consider what happened in the past two weeks: Charlie Javice, the founder of financial aid start-up Frank, was arrested, accused of falsifying customer data. The jury found Rishi Shah, a co-founder of advertising software start-up Outcome Health, guilty of defrauding customers and investors. And a judge ordered Elizabeth Holmes, the founder who defrauded investors at her blood testing start-up Theranos, to begin her 11-year prison sentence on April 27. ??‍⚖️?

These developments follow the February arrests of Carlos Watson, the founder of Ozy Media, and Christopher Kirchner, the founder of software company Slync, both accused of defrauding investors. Still to come is the fraud trial of Manish Lachwani, a co-founder of software start-up HeadSpin, set to begin in May, and that of Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, who faces 13 fraud charges later this year. ?⚖️?

Taken together, the charges, convictions, and sentences have created a feeling that the start-up world’s fast and loose fakery actually has consequences. Despite this generation’s many high-profile scandals (Uber, WeWork) and downfalls (Juicero), few start-up founders, aside from Ms. Holmes, ever faced criminal charges for pushing the boundaries of business puffery as they disrupted us into the future. ?️⚡?

The funding downturn may be to blame. Unethical behavior can largely be overlooked when times are good, as they were for tech start-ups in the 2010s. Between 2012 and 2021, funding to tech start-ups in the United States jumped eightfold to $344 billion, according to PitchBook, which tracks start-ups. More than 1,200 of them are considered “unicorns” worth $1 billion or more on paper. ???

But when the easy money dries up, everyone parrots the Warren Buffett proverb about finding out who is swimming naked when the tide goes out. After FTX filed for bankruptcy in November, Brian Chesky, the CEO of Airbnb, updated the adage for millennial tech founders: “It feels like we were in a nightclub and the lights just turned on,” he tweeted. ??‍♂️?

In the past, the venture capital investors who backed start-ups were reluctant to pursue legal action when they were duped. The companies were small, with few assets to recover, and going after a founder would hurt the investors’ reputations. That has changed as the unicorns have soared, attracting billions in funding, and as larger, more traditional investors including hedge funds, corporate investors, and mutual funds have entered the investing game. ???

“There’s more money at stake, so it just changes the calculus,” said Alexander Dyck, a professor of finance at the University of Toronto who specializes in corporate governance. ?

The Justice Department has also been urging prosecutors to “be bold” in pursuing more business frauds, including those at private start-ups. As a result, we’re seeing charges for founders of Frank, Ozy Media, Slync, and HeadSpin, and more charges are expected. ??‍⚖️?

IRL, a messaging app valued at $1 billion by investors, is being investigated by the Securities and Exchange Commission for potentially lying to investors about its user numbers, according to reporting from The Information. Rumby, a laundry delivery start-up in Ohio, allegedly fabricated a story of financial success to secure funding, and the founder used that money to buy himself a $1.7 million home, according to a lawsuit filed by one of its investors. ?️??

News outlets have also reported unethical behavior at start-ups like Olive, a $4 billion healthcare software start-up, and Nate, an e-commerce start-up claiming to use artificial intelligence. A spokesperson for Olive said the company “disputes and denies” the reported allegations. ??️?

All of this has created an awkward time for venture capital investors. When start-up valuations were rising, they were seen as visionary kingmakers. It was easy to convince the world, and the investors in their funds — pension funds, college endowments, and wealthy individuals — that they were responsible for stewarding capital with the unique skills needed to predict the future and find the next Steve Jobs to build it. ???

But as more start-up frauds are exposed, these industry titans are playing a different role in lawsuits, bankruptcy filings, and court testimonies: the victim who was fooled. ?⚖️?

Alfred Lin, an investor at Sequoia Capital, a top Silicon Valley firm that invested $150 million in FTX, reflected on the cryptocurrency disaster at a start-up event in January. “It’s not that we made the investment, it’s the year-and-a-half working relationship afterward that I still didn’t see it,” he said. “That’s hard.” ???

Venture capital investors maintain that their asset class is among the riskiest places to put money but offers the potential for big rewards. The start-up world celebrates failure, and if you’re not failing, they think you’re not taking enough risks. But it’s unclear if this defense will hold as the scandals become more humiliating for everyone involved. ???

Investors are turning to consultants like RHR International for help identifying the signs of “Machiavellian narcissists” who are more likely to commit fraud, said Eden Abrahams, a partner at the firm. “They’re tightening up the protocols around how they’re vetting founders,” Ms. Abrahams said. “We’ve had a series of events that should be making us think and learn.” ???

All of this marks a turning point for the start-up scene and its investors. The days of faking it, playing fast and loose, are over. Start-ups and investors must be more careful and honest if they want to succeed in this new environment. The consequences are real, and the truth is more important than ever. ???