tech
VC-backed startups commit more fraud, and researchers think they know why
New research from the U.K.'s Imperial College and France's Emlyon Business School mapped out how Silicon Valley founders commit fraud — and the role investors play.
TL;DR
- VC-backed startups are more likely to face fraud charges compared to non-VC-backed companies.
- Startups launched during overheated markets with weak oversight are more prone to fraud.
- Founders may engage in "façading" in three stages: surface, reinforced, and deep, to hide poor performance.
- Investors' high growth expectations and continued backing of founders with past fraud allegations contribute to the problem.
- Startups with founder-controlled boards are twice as likely to commit fraud.
- Companies staying private longer face less scrutiny, potentially enabling fraud.
- Researchers propose SEC audits for startups above a certain investment threshold and greater investor accountability.