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One way to fake a leading indicator is to increase headcount and cash burn rapidly. Those increases create a "hockey stick" graph. Just use that graph when pitc

One way to fake a leading indicator is to increase headcount and cash burn rapidly. Those increases create a "hockey stick" graph. Just use that graph when pitching to investors. You can also time it so that your ad spend doesn't hit until the next financial period, which makes it look like there is actual growth commensurate with the headcount increase and disproportionate (in a good way) to cash burn. After all, what kind of founder would increase headcount unless it was needed :) Disclaimer: This works best when pitching a round after you have already got some early investors to help with the sales pitch to the next round of investors.

coenhyde 8y ago
I can't tell if you are being sarcastic or if this is intended as advice
- theseatoms 8y ago
  Cynical advice can be both.
  - bredren 8y ago
    And given how cut throat fund raising can be I can't blame the cynicism. Sometimes you're after the same money someone with a much stronger pedigree than you is after. Their false metrics are "Stanford" or ~"involved in building a popular but now defunct protocol" that is no better indicator than working on something.
- freehunter 8y ago
  Lots of what startups do is some kind of fraud. Whether you're defrauding investors like `resters idea or defrauding users like Reddit's early days (each employee had multiple accounts to make it seem more active than it was) the trick is just not to get caught. Of course, defrauding investors has a far higher likelihood of getting you into serious legal trouble than defrauding users. And with this one, even if you don't get caught, if it doesn't work out properly you are fucked. But hey, if it does work, it'll make a great story to tell at your IPO celebration party over a glass of champagne.
  - Wowfunhappy 8y ago
    Curious... is this fraud? It's certainly duplicitous, but are laws being broken?
    - freehunter 8y ago
      It certainly would be fraud [1] the question is, would it be illegal? Not all fraud is illegal, and not all illegal fraud is prosecuted as such (or at all). Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be. The only reason to grow headcount and increase burn rate to unsustainable levels and offset those expenses in the books right before an investor presentation would be to give the investor a misleading view of your company. You'd be at the very least inviting a lawsuit... that is, if you got caught. [1] "Fraud involves misrepresenting facts for the specific purpose of gaining something that may not have been provided without the deception." https://www.investopedia.com/terms/f/fraud.asp https://www.investopedia.com/terms/f/fraud.asp
      - dragonwriter 8y ago
        > Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be. Civil fraud is illegal, so if it is not illegal, it is not civil fraud.
      - mattmanser 8y ago
        He was asking if Reddit was fraudulent. It wasn't. Please learn the meaning of such serious words before you start throwing them around.
    - engineeringwoke 8y ago
      White collar crime in America? That's rich
  - 8y ago
- fapjacks 8y ago
  "Fake it til you make it"
throwaway080383 8y ago
Shouldn't any halfway decent investor discover this when performing due diligence? Or is there more stupid money out there than I realize?
- bkanber 8y ago
  There is a LOT of money out there, and most of it is stupid.
- Benjammer 8y ago
  How is an investor going to realize that some manufactured needs over time for 2 more developers here or 1 more there are not _really_ needed to run the company at some objectively higher level of efficiency?
  - deleted 8y ago
    [deleted]

coenhyde 8y ago

I can't tell if you are being sarcastic or if this is intended as advice

theseatoms 8y ago
Cynical advice can be both.
- bredren 8y ago
  And given how cut throat fund raising can be I can't blame the cynicism. Sometimes you're after the same money someone with a much stronger pedigree than you is after. Their false metrics are "Stanford" or ~"involved in building a popular but now defunct protocol" that is no better indicator than working on something.
freehunter 8y ago
Lots of what startups do is some kind of fraud. Whether you're defrauding investors like `resters idea or defrauding users like Reddit's early days (each employee had multiple accounts to make it seem more active than it was) the trick is just not to get caught. Of course, defrauding investors has a far higher likelihood of getting you into serious legal trouble than defrauding users. And with this one, even if you don't get caught, if it doesn't work out properly you are fucked. But hey, if it does work, it'll make a great story to tell at your IPO celebration party over a glass of champagne.
- Wowfunhappy 8y ago
  Curious... is this fraud? It's certainly duplicitous, but are laws being broken?
  - freehunter 8y ago
    It certainly would be fraud [1] the question is, would it be illegal? Not all fraud is illegal, and not all illegal fraud is prosecuted as such (or at all). Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be. The only reason to grow headcount and increase burn rate to unsustainable levels and offset those expenses in the books right before an investor presentation would be to give the investor a misleading view of your company. You'd be at the very least inviting a lawsuit... that is, if you got caught. [1] "Fraud involves misrepresenting facts for the specific purpose of gaining something that may not have been provided without the deception." https://www.investopedia.com/terms/f/fraud.asp https://www.investopedia.com/terms/f/fraud.asp
    - dragonwriter 8y ago
      > Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be. Civil fraud is illegal, so if it is not illegal, it is not civil fraud.
    - mattmanser 8y ago
      He was asking if Reddit was fraudulent. It wasn't. Please learn the meaning of such serious words before you start throwing them around.
  - engineeringwoke 8y ago
    White collar crime in America? That's rich
- 8y ago
fapjacks 8y ago
"Fake it til you make it"

throwaway080383 8y ago

Shouldn't any halfway decent investor discover this when performing due diligence? Or is there more stupid money out there than I realize?

bkanber 8y ago
There is a LOT of money out there, and most of it is stupid.
Benjammer 8y ago
How is an investor going to realize that some manufactured needs over time for 2 more developers here or 1 more there are not _really_ needed to run the company at some objectively higher level of efficiency?
- deleted 8y ago
  [deleted]