While startups are essential to innovation, there is a darker side. Fraudulent startups range from investors who give a startup a term sheet with no capital behind him, to an entrepreneur who builds a team, signs contracts and sometimes raises millions of dollars with nothing but air.
This article identifies patterns that indicate that the start is fraudulent: the entrepreneur or investor spends a lot of time talking about himself and his astronomical accomplishments; unrealistic promises; non-stop sales; compulsive name dropping; money, or lack thereof; and illogical excuses.
https://www.entrepreneur.com/article/295304
Recently, CEO of Tech Startup WrkRiot was convicted of Fraud. Founder, Isaac Choi, displayed many of the above patterns. He lied about his name, falsified his educational and professional history and personal wealth, and scammed at least a dozen employees before being caught by authorities.
http://www.sfweekly.com/news/ceo-of-tech-startup-wrkriot-convicted-of-fraud/
Mylinh, this is a fascinating article, thank you for sharing. I spend a lot of time in San Francisco, particularly in the “startup” circles that are so prevalent there. What I think the author of this article misses is that these scam artists are successful and able to scam people because the premises fueling this startup economy are at odds with traditional investing and risk assessment. Everyone is seemingly looking for the next “unicorn” so these VC firms throw caution to the wind and buy into a cult of personality hoping that these fledgling companies end up being the next Uber or Facebook. What was really fascinating to me is the list of qualities the author identifies for scam artists are typically shared by the so-called legitimate CEOs as well. When everyone out there – spends a lot of time talking about themselves and their astronomical accomplishments; makes unrealistic promises; sells nonstop; compulsively name drops; makes excuses for lack of sales/money – how do we separate the legitimate investments from the scam artists? Until these companies start turning profits, and stop making excuses for their lack of sales/growth, I think the scam artists will continue to thrive.
Wow. It’s hard to figure out how the employee, Penny Kim, could have known that Isaac Choi was running such a sketchy operation. Should employees of new startups be tasked with checking the credentials of the founders to make sure they attended the universities from which they claim to have received degrees? I would expect angel investors would do more homework than employees, but even they might fall prey to shady business setups as we saw in Theranos.