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Anatomy of a Scam
- supernova87a 7y agoThe thing that set my alarm bells is the projected revenue, users, posts, and etc. column charts. They have noise in them. As if someone played with the numbers to make them look like they're real data.
- omarhaneef 7y agoIf we are going to list our own scam experiences here: a company asks for $15mm on a $30mm pre. You better have sales, I say. They do they say. $1 Billion worth! What are your margins? 30% they say! Uh, so why don't you go to a bank? Well, you know banks charge an arm and a leg. At this point, I don't believe anything but I ask for the contracts or the POs from the companies (GE! Honeywell!) thinking I would verify them later. I get identical looking POs, adding up to a few hundred thousand, all from unheard of companies.
- duxup 7y agoI'm probably misunderstanding here but these guys said they had $1 Billion in sales, their margins are 30% ... but needed 15 million from you? You'd think with those margins and sales they'd have 15 million just lying around ... for pizza parties or something.
- omarhaneef 7y agoThis was in future sales for the upcoming year. They had to deliver to make it happen. You see Honeywell had written a $100mm PO to a new company without the factory to produce the product.
- duxup 7y agoOh, man $1billion just waiting to happen yeah that's suspicious. That would be pretty brave of Honeywell there ... I guess it wouldn't technically cost them anything to have a PO where they maybe had to deliver a product first but big company like that looking at someone without a factory would more likely get a "lol k thanks bye" than a PO ;) Seems unlikely they'd bother to even plan to sell a product that isn't a thing yet tied to some nobody without means to produce it.
- simonebrunozzi 7y agoI would assume that the honeywell PO worth $100M was part of the scam, and therefore no "braveness" on their part.
- duxup 7y agoThat's my assumption too. I was just pointing out all the reasons that it seemed strange.
- Bartweiss 7y agoOver on the employment side, I got a summer job pitch in college from a hot new startup building some kind of app to help turn activity tracker output in actionable info. A startup of four people. "This sounds interesting, but I'm wondering why you're looking for a fifth employee who's only going to be around for a few months instead of someone committed?" "We don't want to shorten our runway with salaried hires too fast, but we're expecting to close funding within the next year, so we can bring back the summer hires full-time after graduation and you'll already be ramped up." "So you have some runway now, and you're negotiating more funding - you've raised angel funds and are working out Series A?" "Well, we're still at 'friends and family' and we haven't pitched VCs yet, we don't want to dilute the company too quickly. But we're starting to sound out investors and we've had a lot of interest!" "So if you're that early on, are you looking at hiring purely in stock? How will that work with the temporary role?" "Obviously we can't give people shares just for a summer of work, and we don't want to plan too far into the future since we don't know our timeline yet. But once we close this funding we'll of course be making very competitive salary hires with stock grants." "So it's contract work with the potential to become an early startup employee later? I don't mean to obsess about salary, but I see it's in New York City and I'm going to need to pay rent." "Well it's not contract work as such, we want people more dedicated to our mission than that. But I guess I could talk to the other founders about putting together some sort of housing stipend." "So, it's an unpaid internship in NYC, and you're not willing to put anything beyond that in writing?" "..." Just for fun, I kept talking for long enough to find out the top-secret details of what the app actually did, which took some doing. It was going to assess your activity level and "holistic well-being" to present a "supportive audiovisual experience". They'd stapled a 2000-era WMP music visualizer to a mood ring.
- omarhaneef 7y agoUgh. I’m glad you were aware enough to ask the right questions. However, I will add that whatever poor judgements people make there is just this line that is crossed with actual falsehoods that is hard to undo. Whatever mistakes these would be employers made, at least they told the truth.
- Bartweiss 7y ago
- aty268 7y agoI have a question. How in the world do VC's ever fall for this bullshit? I mean in most situations they have made enough money on their own to invest, so they aren't stupid right?
- dharmon 7y agoThere are a lot of parts to the answer, at least in my experience with VCs. Probably the biggest is just that they have a bias to be bullshitted (bullshat?). The are constantly searching for the next big thing, so they need these things to be true. They want them to be true. And human nature makes them scared of missing out. Also, most of the VCs out there are not investing their own money, and have never actually operated a business. This is why they ask the same questions with slight variations, and get obsessed with metrics that may or may not apply to a given business. This also makes them easier to fool, although many make up for this hands-on inexperience with enough years of watching startups that they can "pattern match" rather than understand things from first principles. Most also develop specialties. You're not going to fool an experienced blockchain VC with the made up or cherry-picked bitcoin numbers. But go next door on Sand Hill Rd and you can probably get away with it.
- smt88 7y ago1. Most VCs don't create value. Compared to a passive fund, like an ETF, they lose money (and take large fee, regardless of performance). 2. Most of the people staffing VCs were not necessarily successful investors. Many were people in their 20s escaping the NYC banking scene to be analysts in VC. These days, there are many people on the capital side that are ex-entrepreneurs, but that still doesn't mean they know how to spot a deal. 3. It does not always make economic sense to try to out a scam. If your model is that you find one mega-return to erase 100 failures in your portfolio, you actually go around looking for deals that sound insane (like Theranos). If other reputable VCs have already led the round, you just throw your money in without even investigating. 4. Most importantly, most VCs don't fall for anything this crappy. The target is likely individuals with net worths in the millions who aren't very business savvy. There are lots of such people (children of wealth, for example).
- 7y ago
- gitgud 7y agoMost pitches come off as scams to me, as their main goal is to sell you an idea that you haven't heard before... And some people will do what ever it takes to convince you, like; lie, obfuscate, appeal to emotion etc...
- edouard-harris 7y agoWhat's immediately remarkable about this deck is the frequency of poor phrasings and misspellings, especially as you get deeper into it. Virtually none of the "legitimate" pitch decks I've encountered have suffered from this degree of sloppiness.
- ceejayoz 7y agoAs with scam emails, I suspect that's to weed out overly skeptical potential victims early on so you're not wasting time on someone who will realize it's a scam.
- edouard-harris 7y agoDefinitely possible.
- hef19898 7y agoTalking about managing your sales funnel...
- meheleventyone 7y agoMaybe it’s like the apocryphal rumour that spelling mistakes in scam emails are really a filter to get rid of a large chunk of people who wouldn’t fall for the scam anyway.
- arcturus17 7y agoDoes that make sense from a behavioral-economic perspective? What is the scammer’s incentive to filter certain people out? Wouldn’t it be better to move more people down the “funnel” and filter potential troublemakers as they appear?
- edouard-harris 7y agoGenerally in a sales process, the further down the funnel you get (as a prospect) the more of your counterparty's time you'll be consuming. A mass-email might trigger a call, for example. I think the idea is that the scammers might be pre-qualifying their prospects for gullibility before committing further time to closing the sale.
- r_singh 7y agoIn India anyone can purchase the balance sheet and p&l for any private company as long as you know its name or directors name on a website like https://zaubacorp.com https://zaubacorp.com PS - no affiliation Edit: Not sure why I'm being downvoted, added this because I genuinely think it is a good additional step for seed investors and HNIs investing in startups to ensure the legitimacy of the claims made in a pitch deck.
- ceejayoz 7y agoFraudulent balance sheets / P&L statements aren't impossible.
- r_singh 7y agoFair enough, but they're much harder to fake than a pitch deck. Require co-ordination between multiple businesses. Fake Income Tax returns, etc. I've seen pitch decks where companies claim they have 100s of customers like Amazon, etc. Whereas their revenues on P&L are like ~$20,000 per year.
- pintxo 7y agoA public register for balance sheets is quite usual, isn't it? It is basically the next feature to implement after establishing a company register. I am quite often checking on potential business partners using the relevant company registry. Looking for owner structures and latest balance sheets.
- notahacker 7y agoP&L is possible to purchase in many other jurisdictions too, including the UK. It's also borderline irrelevant if the theoretical valuation of your startup is based on something which becomes a revenue stream in future (SaaS revenue, enterprise contracts, coin value appreciation). Obviously some startups have more plausible arguments about the magnitude of future revenue streams not based on past performance than others
- r_singh 7y ago
- nullc 7y agoA couple years ago I had the privileged of getting to overhear an adjacent table where a scam cryptocurrency founder was pitching their ICO to an investor in a restaurant in mountain view. At the time I hadn't even heard of it but it went on to raise a lot of money then end up mired in legal trouble. The central premise of the pitch was to repeadily go over how Bitcoin market price had changed from 2009 to whenever it was (probably around $3000 at the time), and then suggest that their new asset would experience even greater increases even faster because <jargon>. Paraphrasing: "So if I invest $1m today, in seven years...?" "Your investment be worth 100 billion! maybe more, but I can't promise that. 100,000x growth is the _minimum_ but the maximum is anyone's guess". They looped over and over again, I think with the prospective investor making extra sure he understood before writing the guy he was talking to off as a scammer. At that point I stopped worrying about the particular pitchee was going to get scammed, it was too absurd. (I'm sure my numbers aren't exactly right, for one they had a bunch of excess precision in reality, presumably based on the day's Bitcoin price, but whatever it was was totally absurd). > or even a VC that is not tech savvy Honestly, I think being "tech savvy" is a liability. Someone who doesn't think they're tech savvy knows they don't know. It takes a certain level of expertise to talk yourself into something extremely dumb. They might not fall for this particular pitch deck (or the one I overheard), but there are scams for every skill level. And the more confident you are in your understanding, the larger the "investment" you will being willing to make.
- bduerst 7y ago>Honestly, I think being "tech savvy" is a liability. Someone who doesn't think they're tech savvy knows they don't know. It takes a certain level of expertise to talk yourself into something extremely dumb. What you just said, but in visual form: https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect#/media/File:Dunning-Kruger-Effect-en.png https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect#...
- magic_beans 7y agoThis case, where being "tech savvy" actually produces the ignorance, is actually the opposite of the Dunning Kruger effect.
- buildbuildbuild 7y agoMaking the fictional company a cryptocurrency startup is lazy writing in my opinion, they are too easy to criticize. This article would be more compelling if it were analyzing a more “stealth” scam in a different market sector.
- jacquesm 7y agoSome other time :) Candidates enough, but this is a deck doing the rounds right now.
- vikramkr 7y agoThanks for creating this post! Fascinating read. You mentioned in the post that a lot of the links in there would probably right t away with time - do you think there's any value in archiving the links and linking to the wayback versions so they're preserved for education for posterity?
- jacquesm 7y agoYes, that would be very useful.
- TeMPOraL 7y ago> I have no idea what the graph has to do with the words, maybe there is some connection here but I haven't found it yet. With the slide saying: "The lack of direct integration with operating companies and associated funding sources creates volatility and eventually subjects other coins or tokens to disintermediation and extinction." (Or, translated "other tokens die because of $reasons") I think the point of the graph is to just reinforce the mood. Be an emotional influence that makes you take the slide's message more seriously. Where the text talks about the reasons why other tokens fail, you see a line representing something going down in value fast. For some reason, just looking at it makes me feel sad, the "oh no my investments" kind sad. Which I believe was the whole goal.
- g_sch 7y agoMy favorite graphics in these slides are the revenue/user graphs that show occasional, apparently randomly inserted, MoM downturns. Could be an effort to make them seem more "realistic", even though I would be surprised if it were possible to make predictions with that kind of precision.
- jacquesm 7y agoMy personal favorite: the hockeystick that always takes of two months after the proposed closing date.
- microtherion 7y agoWhat genuinely puzzles me is the myChauffer revenue forecast quadrupling from Dec of Year 2 to Jan of Year 3, seemingly without any explanation offered in the text: https://jacquesmattheij.com/warpdeck/WarpDeck-14.png https://jacquesmattheij.com/warpdeck/WarpDeck-14.png
- majos 7y agoIt's interesting to look at these slides because I so strongly prefer simple straightforward "ugly" presentations to slick vector art ones that include a timeline from 9000 BC. Slick presentations prime my "this is BS" suspicion. I know this preference is a trope for people on HN (I mean, look at the HN layout) but it's strange to me that VCs apparently have such different preferences.
- dblock 7y agoHere's a deck from the convicted con artist Anna Delvey, https://www.are.na/block/2250665 https://www.are.na/block/2250665 The strongest slide is the team, which includes 2 PhDs, and an MIT research scientist.
- dpflan 7y agoWhat happened with this company and pitch?
- dblock 7y ago4-12 years, https://www.thecut.com/2019/05/anna-delvey-sorokin-sentenced-to-prison-after-trial.html https://www.thecut.com/2019/05/anna-delvey-sorokin-sentenced...
- gefh 7y agoOhhh, that Anna Delvey! I remember her from this long form article, well worth anyone's time: https://www.thecut.com/2018/05/how-anna-delvey-tricked-new-york.html https://www.thecut.com/2018/05/how-anna-delvey-tricked-new-y...
- hangonhn 7y agoDid they know they were on her team?
- Traster 7y agoPut this next to the old Softbank pitch deck, take the company names off and I bet you people wouldn't be able to figure out which was fake.
- fortran77 7y agoPeople really want to believe in a "Female Steve Jobs." I think one key to a successful scam today is a female CEO.
- jacquesm 7y ago
- BioGeek 7y agoAll those pages that you found of people having exactly that same combination of educational background can be simply explained. They are the default sample content of the Team page on certain Wordpress themes (Therefore also the WP in ‘Blockchain WP’). A quick Google search shows that for example the FinanceCo theme from Radius has the same exact Education listing.[0] So the other profiles you found could just be sloppy webmasters who didn't remove the default Team pages of their Wordpress theme. [0] https://www.radiustheme.com/demo/wordpress/themes/financeco/team/alexander/ https://www.radiustheme.com/demo/wordpress/themes/financeco/...
- jacquesm 7y agoInteresting, ok never thought that it might be the wordpress template. Will update the text. Even so, that "Sam Chester" page on that first linked site is legit. I think I found the legal guy too (US lawyer by the looks of it), this is his twitter page: https://twitter.com/richardnacht https://twitter.com/richardnacht
- mattrp 7y agoWhile this points to outright scam - I’ve seen a fair number of pitch decks that deserve to be thrown in the trash but get serious attention anyway. It seems obvious but I’ve seen a number of investors who will ignore a history of average growth, simply eyeball next year’s forecast, and go with their gut if the management team has solid verbal skills and looks the part.
- naravara 7y agoTotal aside, but this notion that before the invention of minted coinage all exchange was done via "barter" is just completely ahistorical. Before currency exchange was done via favors. Instead of countable coins, you contributed to your community and built up a reserve of "honor" or "cred" that you could use to call in favors when you needed any kind of help or support. It's usually referred to as a "gift economy," but people get thrown off by the term "gift." It's less about the stuff you give or do and more about the obligations you have as a member or friend of any given community. The main thing to remember is that people just had a very different way of thinking about the exchange of goods and services back then. It wasn't about financial transactions or maximizing economic returns, it was much more about building up cred and standing within a community. Where financial transactions really come in is being able to facilitate exchange between two communities where that underlying foundation of trust and persistent social connection doesn't exist. This is why marriages between "clans" or "tribes" or whatever would often be marked by exchange of things that hold value like livestock, heirlooms and handicrafts, or parcels of land. These aren't really "barter" exchanges though, they're more like collateral or shows of good will between two groups or people who don't necessarily have a strong basis for trusting each other. This is why coinage really starts to come around when you have large kingdoms or empires. Those rulers mint the coins because they control larger swathes of territory than could be governed by the sort-of-feudal interractions of familial obligation. So you start keeping track of things via precious metals instead.
- Terr_ 7y agoIn longer form: "Debt: The First 5,000 Years" by David Graeber
- danschumann 7y agoI wish I could be as "religious" about my own company as that pitch deck is about warp. I know it's a scam, but the way its presented, I'm almost excited about it, lol.
- LoSboccacc 7y agoat face value is a great idea, you sidestep blockchain adoption by tying it to physical and social services, you sidestep certain taxation like vat because value is gained only when these coin are converted back into money, you're not holding account because people purchase coins for money, so the money you sit on is yours, they only have a guaranteed buy back price. it's extra funny because I know a startup that did basically that and is quite successful; but of course it focused only on the coin service exchange part and throw away the bitcoin / services nonsense.
- TrackerFF 7y agoI can't imagine anyone falling for these scams, unless there's a complete and utter breakdown in due diligence. At some point you're gonna go on and have a meeting or video chat, and it'll all come crashing down.
- jacquesm 7y agoYou'd be surprised how many investors simply do not do due diligence at all. There is a lot of dumb money floating around.
- rwmj 7y agoBeing involved in a blockchain company since 2001 is quite an achievement, given the Satoshi paper was only published in 2008.
- TrackerFF 7y agoBut I think the worst scammers are those that operate in a semi-legit way. They're actually out there, in person, trying to raise money for some product which may work on a fundamental level, but that does not mater, as they have no plans on developing anything. Maybe they have legit experience from before, and even have serious people that can vouch for them, if needed. They put together startups, have a couple of good months, but then go back to regular programming of funneling VC money into their own account, while starving out their startup. Then when the startup goes under, they disappear, only to resurface a year or two later somewhere else. Probably with a new name or alias. They almost never go for the real big fish / tens of millions, or even millions - but just enough to live a cushy and flashy lifestyle. Nice leased penthouse, cars, etc.
- fortran77 7y agoI get the feeling that it's easier to raise money for some vaporware, and then have fun for a couple of years with that pile of money than to spend a couple of years self-funding something that actually works and trying to find a buyer.
- jacquesm 7y agoThe more frustrating version: you work hard and self-fund for a couple of years to make something that works. Then along comes clueless bunch 1.0 who are bankrolled by clueless VC who then undercut you on price, over promise and do not deliver leaving you with potentially years without sales because you can't match the hype train. I've seen this a couple of times and it isn't pretty. By the time they finally go belly up you may have preceded them down that path.
- exclusiv 7y agoTotally agree. I came across a few of these over the years. Entrepreneurs that have done 5-10 companies in the past and none succeeded. They always raise money and fill their coffers and their friends' too. They stiff good vendors. Because if you can get real work done for free, it gives them the optics of having created something but they still have more money to squander before it goes belly up. And when the company closes down, unless you can prove fraud there's no recourse. In the movie Goodfellas they articulate it well - obtain the goods on credit, move it in front door and sell it at a discount out the back. It doesn't matter. It's all profit! Then they even light it on fire and collect insurance money.
- notahacker 7y agoI think the most important takeaway from this is how many businesses which are not scams and have real revenues are tempted to flesh out presentations with similar vanity metrics and spurious background info...
- jacquesm 7y agoThis really happens and it almost invariably leads to some pretty pointed discussions during the due diligence. The tough part for the founders is that any surprises during DD cause break off risk or adjustments, sometimes major ones. Not getting funded in some circles leads to you not being able to get funding at all. The tam-tam is pretty powerful in VC circles.
- notahacker 7y agoThe irony is that whilst posting that I was interrupted by a founder for feedback on market size indicators for an investor presentation. One where the DD guys will have signed contracts in tough-to-enter markets to scrutinise ahead of CIO survey percentages on slide decks, but still feel my less is more advice was justified.
- winslett 7y agoI’ve seen these types of decks pitched internally at blue chips as well. There, an audience being bewildered by innovative words is exciting. Get in, get budget approved, get promoted before the devil even knows you’re there.
- known 7y agohttp://archive.vn/mvdxA http://archive.vn/mvdxA vindicates https://archive.vn/zKT4B https://archive.vn/zKT4B