I examined 6 startups whose members deceived their investors in some way. The 6 startups were: Theranos, WeWork, Nikola Motors, builder.ai, FTX, Frank. The primary goal of the investigation was to determine what the early signs and common features are that would indicate that the startup is fraudulent. I found 3 such signs.
Telltale signs
One telltale sign is that a startup's early marketing mix is disproportionately heavy on PR. The founders of such startups are going from studio to studio and conference to conference. And here, alongside our main question, arises why journalists believe them.
Another telltale sign is that the startup does not appear to pose a threat to the established companies in its market. For example, Uber poses a major threat to traditional taxi services, while WeWork itself did not pose a threat to office publishing companies.
And the third is that they have connections to famous people and it's even possible that they have insiders at big companies that are looking to them to be investors. The second half of the claim is just a hunch for now, I can't prove it.
Why don't I blame the investors?
There are 3 main reasons why investors don't notice when a startup founder cheats. Reasons that are known in psychology. So I don't blame them. The vast majority of people would do the same as investors.
I will write about these three reasons in my next post.
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