TechCrunch Minute: How HeadSpin’s Fraud Founder Almost Succeeded in Liing to Investors

TechCrunch Minute: How HeadSpin’s Fraud Founder Almost Succeeded in Liing to Investors

News that he is the former founding father of HeadSpin he went to prison fraud was further proof that the recent boom in the interconnected worlds of startups and enterprise capital has led to greater than a little fraud. Manish Lachwani, the founder in query, faces jail time and a hefty wonderful for lying to investors – lies that allowed his company to raise nine-figure funds.

The company is standing its ground and would probably prefer the entire situation to disappear from the public eye. Pretty good, but the story about Lachwani… The New York Times reports. that Lachwani inflated “HeadSpin’s revenues by nearly fourfold by making false statements about its customers and creating false invoices to cover it up” — is not an isolated incident.

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Even beyond the somewhat dated scams at Theranos and Rothenberg Ventures, there has been a lot to talk about recently. From investor complaints about Bolt’s fundraising to BloomTech, Nikola, Binance and FTX, we have seen a lot of economic shenanigans. Why do we see so much fraud and related behavior from start-up tech corporations?

Pace in a way. During a historically unusual period of low rates of interest, profit-hungry capital has flooded into the enterprise capital world. As a result, investors were very busy with their checkbooks and sometimes spent less time on diligence. Recall that many very young startups have more ideas and potential than hard assets and historical money flows, so what counts as diligence for a PE firm looking to buy, say, gas stations is different from diligence for a seed-stage startup . But capital was also flowing into late-stage startups, leading to a lot of capital flowing in a short time. Mistakes were made, or to put it one other way, some founders saw the boom period as a time in which they may bend the rules.

Keep in mind that when a market reaches its peak, you’ll be able to often see an explosion of fraud. Consider this your ultimate warning. Press play, let’s talk about it!

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