RANT: Founders who fake metrics
I have evaluated a lot of startups as part of my work. My approach has changed from being optimistic to being suspicious of a lot of founders, even before the process starts.
The sheer number of founders that I come across that try to game metrics/play around with data to make the startup look good.
Most commonly:
- Completely changing the definition of margins, repeat rates, etc. and never clarifying that they are using different definition.
- Often giving rebates/discounts to key stakeholders but finding ways to hide it from their P&L so that it’s not visible. THIS IS SO COMMON - lot’s of them start showing revenues, and then you will see another cost item rising at the same pace, and lot’s of times it will just be money moving around
- Sometimes completely giving the wrong picture of how their product works on ground. You then speak with their customers, and they describe something completely else.
Things like these are eating up the ecosystem. These founders also end up fooling some VCs, and then capital get’s kept away from actually good founders who have good intentions.
There was a recent major investment in the commerce space, and that is another one such example of a startup doing this. Needs to stop.
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Your rant is well justified. These con artists disguised as founders are a disgrace to our entrepreneurial ecosystem. They're like the mirage in a desert, alluring but non-existent. Their tricks might fool some for a while, but truth has a way of revealing itself. And when it does, it's not pretty. These fraudsters should be blacklisted. They're not just stealing from investors, they're robbing deserving startups of opportunities. It's high time we clean up this mess.
The biggest problem is that VCs invite this unto themselves by acting all high and mighty but instead just 💩 talk all the time.
Bro, I really find it difficult. How can startups fool VCs. These people have folks who do due diligence, right?
Finally someone said it. Thanks for being vocal about this.
While this is true, this has existed forever.
Back in 2016 (pre-housing), startups would splurge on bulbul apps etc – these were apps that would pay college students to download apps, sign ups, place dummy orders etc. If you had a mobile app with X mn downloads, you would get a series A.
If you look at the % of startups faking it today vs 2016, I would say it has improved to a great extent. Primarily because policing has jumped in the last few years.
Aap toh is race circuit ke purani visitor lag rhe ho :)
In other news, water makes most things wet.
Why?.. it's all fair.how many VCs operate on truth?. One thief stealing from another. It's perfectly fine. its the job of the VC to evaluate properly and invest. Everything should not be spoon fed.
You know what the problem with this is right? Cost of verification would balloon and VC deals might eventually be reserved for a few, in a trusted network (ex colleagues, batchmates etc). For capital to be truly accessible we need to move towards a higher trust eco-system, and that can only happen if founders are empathetic to others who will share this ardous but amazing journey (peers or in future) and uphold moral values.
It might seem to be a shortcut now, but as we mature as an ecosystem, it is really important for us to gravitate towards a high trust model :).
Most deals are already within the trusted ecosystem. Board members are hired within their network. Ceo/MDs are hired within the network.
Businesses are never run on trust. This whole emphasis on "trust" is just PR. Any transaction between parties where there is knowledge asymmetry, will result in favour of the party that has more knowledge. So deals will always be lopsided.
Shartank is proof why trust never works in business. There is no honour among thieves. Founder tries to rip the VC, VC tries to rip the founder, there can be only one winner.
Even VCs aren't saints
The problem is even if one fund cuts the cord after due diligence, there are 9 others that can still get fooled.
Was part of a startup that pivoted everywhere from web3 to genAI to B2BSaaS to B2C superapp in no particular order. Saw the pitch deck change every month ffs. The greed from the founders superseded everything and thus winded up within 2 years, without ever closing their seed round or coming out of beta💩.
Goes both ways too, as founders feel compelled to pivot based on the flavor of the season or whatever inputs/feedback some funds give during pitches.
The el Dorado of soaring valuations, Forbes magazine features, Tiger/Sequoia's billions, etc. drives people to do unspeakable things. Dreaming is free but putting ethics in the backseat always comes at a cost.
Well said bro,market still not mature
IDK but scamming seems to be becoming our culture.