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Fully half of the startups I've worked for have the primary (unstated) business model of transferring assets from investors to executives, with the nominal busi

by User23 8y ago

Fully half of the startups I've worked for have the primary (unstated) business model of transferring assets from investors to executives, with the nominal business activity only pursued to the minimum extent necessary to further the executives' real aim. I wonder to what extent these numbers are caused by similar control frauds, or if I've just been particularly unlucky. https://en.wikipedia.org/wiki/Control_fraud https://en.wikipedia.org/wiki/Control_fraud

thaumasiotes 8y ago
I saw a fun one that looks much like money laundering: 1. Receive investment from Imagine K12, under the company's name. 2. Rent four apartments in the heart of San Francisco. 3. List the apartments on airbnb, under the founder's name. Now you've got a substantial income stream under your own name that happens to be funded purely out of your investors' pockets.
- hiram112 8y ago
  This is no different than what a lot of flippers and small time real estate investors do by buying up numerous condos, duplexes, etc., in an upcoming neighborhood, throwing on a fresh coat of paint and some fake granite counters, and renting for 50% more than the month before. Instead of VC money, they're leveraging low interest funny money created by banks and de-facto guaranteed now by the feds. I really don't think the VCs nor the banks care, as long as the rental and AirBNB money keeps flowing, allowing return of principle and even eventual profits. They could care less that it is adding to the unaffordability of homes for everyone else.
  - thaumasiotes 8y ago
    It is different in that the ownership of the capital changes. Going in it belongs to the company; coming out it belongs to the founder personally. If I buy an apartment under my own name, renovate it, and then rent it out under my own name, that's a pretty normal business. If I work for a company that rents an apartment, and I, knowing the company isn't using it, personally rent that apartment out in exchange for payments directly to me, that is, more or less, embezzlement. I don't have the legal right to sell or rent the company's property to you.
131012 8y ago
What happened to these executives?
- User23 8y ago
  They got rich. VCs are very rarely willing to sue or press charges. The most egregious behavior I saw was at a VOIP startup where after being fired the executives stole the switching hardware from the data centers and started a new VOIP startup almost immediately. This is the problem with control frauds and executive malfeasance. While it's negative sum as a whole, it's a sure thing for crooked executives which makes it highly tempting in an environment where there is no real risk of meaningful repercussions.

by User23 8y ago

thaumasiotes 8y ago

I saw a fun one that looks much like money laundering: 1. Receive investment from Imagine K12, under the company's name. 2. Rent four apartments in the heart of San Francisco. 3. List the apartments on airbnb, under the founder's name. Now you've got a substantial income stream under your own name that happens to be funded purely out of your investors' pockets.

hiram112 8y ago
This is no different than what a lot of flippers and small time real estate investors do by buying up numerous condos, duplexes, etc., in an upcoming neighborhood, throwing on a fresh coat of paint and some fake granite counters, and renting for 50% more than the month before. Instead of VC money, they're leveraging low interest funny money created by banks and de-facto guaranteed now by the feds. I really don't think the VCs nor the banks care, as long as the rental and AirBNB money keeps flowing, allowing return of principle and even eventual profits. They could care less that it is adding to the unaffordability of homes for everyone else.
- thaumasiotes 8y ago
  It is different in that the ownership of the capital changes. Going in it belongs to the company; coming out it belongs to the founder personally. If I buy an apartment under my own name, renovate it, and then rent it out under my own name, that's a pretty normal business. If I work for a company that rents an apartment, and I, knowing the company isn't using it, personally rent that apartment out in exchange for payments directly to me, that is, more or less, embezzlement. I don't have the legal right to sell or rent the company's property to you.

131012 8y ago

What happened to these executives?

User23 8y ago
They got rich. VCs are very rarely willing to sue or press charges. The most egregious behavior I saw was at a VOIP startup where after being fired the executives stole the switching hardware from the data centers and started a new VOIP startup almost immediately. This is the problem with control frauds and executive malfeasance. While it's negative sum as a whole, it's a sure thing for crooked executives which makes it highly tempting in an environment where there is no real risk of meaningful repercussions.