I think it’s worth noting that fraud can be a grey thing. Which of the following are fraud: A) Two founders raise $2M at a $20M valuation. They pay themselves $500k each for two years (a bit higher than their previous FAANG salaries), don’t work that hard, write a bit of code but not enough for the product. They ultimately try to raise more but fail to do so and dissolve the company giving investors nothing back (all the money is spent). B) Companies collect credit card details on a 7 day free trial of their product where only shipping needs to be paid. Immediately after 7 days, they charge the credit cards $1000 and send product saying that in the fine print they had to cancel within 7 days or they would be sent the product. The customers would never pay for the product, comparable products cost $100 for what was sent and the company refuses to provide any refund. They spent a lot on the advertisement and got 5000 people to take the 7-day free trial, 4500 of whom did not cancel. C) Medical startup administers more tests than is necessary charging health insurance providers (Medicare and private insurance). Rarely a test finds something that otherwise would have been missed but was definitely not required given symptoms. D) Company X raises $500k at a $5M valuation. They spend $250k reasonably on product development. They then need $500k for a mold for manufacturing. They look for financing in the form of bridge loans, raising additional capital, going back to investors telling them they need another $250k, etc. and don’t manage to do so. CEO of Company X decides that this mold is pivotal for the company and is a good poker player. i) He takes the $250k to the poker table and doubles the money. ii) He loses $150k and then decides to save the other $100k iii) He loses the $250k E) Company X raises a seed round and builds an MVP. They then go on to raise a series A, showing investors a beautiful exponential curve of new users. The company allows the first use of an account to be for free and subsequent use costs $5. Founders purposely make signing up for new accounts very easy such that they know multiple people are making several accounts to use the product for free. F) Company X gets funded by YC and takes the $125k and $375k cheques for 7% and the MFN safe. They never intend to raise another round since they are already profitable but they need to in order to satisfy the MFN clause. They get a family friend to invest $100k at a $1B valuation forcing YC to take those terms. Maybe they later buy out the friend for $105k a few months later.
I don’t know which of the above legally qualifies as fraud but I sure think all of them are at the very least wrong. I’d probably call all of them fraud since they are deliberately deceiving people for financial gain by being credited with false accomplishments/​qualities. I also think reasonable people can disagree with me.
I think it’s worth noting that fraud can be a grey thing. Which of the following are fraud:
A) Two founders raise $2M at a $20M valuation. They pay themselves $500k each for two years (a bit higher than their previous FAANG salaries), don’t work that hard, write a bit of code but not enough for the product. They ultimately try to raise more but fail to do so and dissolve the company giving investors nothing back (all the money is spent).
B) Companies collect credit card details on a 7 day free trial of their product where only shipping needs to be paid. Immediately after 7 days, they charge the credit cards $1000 and send product saying that in the fine print they had to cancel within 7 days or they would be sent the product. The customers would never pay for the product, comparable products cost $100 for what was sent and the company refuses to provide any refund. They spent a lot on the advertisement and got 5000 people to take the 7-day free trial, 4500 of whom did not cancel.
C) Medical startup administers more tests than is necessary charging health insurance providers (Medicare and private insurance). Rarely a test finds something that otherwise would have been missed but was definitely not required given symptoms.
D) Company X raises $500k at a $5M valuation. They spend $250k reasonably on product development. They then need $500k for a mold for manufacturing. They look for financing in the form of bridge loans, raising additional capital, going back to investors telling them they need another $250k, etc. and don’t manage to do so. CEO of Company X decides that this mold is pivotal for the company and is a good poker player.
i) He takes the $250k to the poker table and doubles the money.
ii) He loses $150k and then decides to save the other $100k
iii) He loses the $250k
E) Company X raises a seed round and builds an MVP. They then go on to raise a series A, showing investors a beautiful exponential curve of new users. The company allows the first use of an account to be for free and subsequent use costs $5. Founders purposely make signing up for new accounts very easy such that they know multiple people are making several accounts to use the product for free.
F) Company X gets funded by YC and takes the $125k and $375k cheques for 7% and the MFN safe. They never intend to raise another round since they are already profitable but they need to in order to satisfy the MFN clause. They get a family friend to invest $100k at a $1B valuation forcing YC to take those terms. Maybe they later buy out the friend for $105k a few months later.
I don’t know which of the above legally qualifies as fraud but I sure think all of them are at the very least wrong. I’d probably call all of them fraud since they are deliberately deceiving people for financial gain by being credited with false accomplishments/​qualities. I also think reasonable people can disagree with me.