7 ms·

Can you provide any examples of a high-profile company, ultimately shown to be dishonest, where the early investors were able to “cash out” before this dishones

by avalys 5y ago

Can you provide any examples of a high-profile company, ultimately shown to be dishonest, where the early investors were able to “cash out” before this dishonesty became known?

hef19898 5y ago
Depends on what you call early. Nikola and WeWork come to mind, I assume Newman wasn't the only one to cash out early enough during one of the founding rounds.
ta1234567890 5y ago
Uber Explanation, since this is being downvoted. Uber might not have lied about their business, but it surely looks like investors never cared about the businesses viability and rather only cared about being able to turn a profit on their investment (which was the point being made by the gp). To this day, it is still not clear if Uber’s business model is viable. Also not to mention the original CEO/founder’s reputation and attitude, which the investors also didn’t care about until it became too big of a scandal. Additionally, the investors didn’t even care that Uber was technically illegal (same as Airbnb btw). Some references: https://techcrunch.com/2021/02/12/will-ride-hailing-profits-ever-come/ https://techcrunch.com/2021/02/12/will-ride-hailing-profits-... https://www.marketwatch.com/story/uber-and-lyft-are-staging-a-ridiculous-race-for-fake-profits-11628205337 https://www.marketwatch.com/story/uber-and-lyft-are-staging-... https://www.businessinsider.com/uber-company-scandals-and-controversies-2017-11#january-2012-uber-gets-slammed-in-its-first-major-surge-pricing-backlash-2 https://www.businessinsider.com/uber-company-scandals-and-co...
- eli 5y ago
  A dishonest company in other ways too. They sent drivers and riders misleading information about any local attempts to regulate them in the slightest. When they first launched UberX in DC, I called them out for a price comparison of Taxi vs UberX that couldn't possibly be true. They quietly changed the blog post and marketing materials shortly after.
- Alex3917 5y ago
  > which the investors also didn’t care about until it became too big of a scandal More like investors didn't care until they needed liquidity.
- supperburg 5y ago
  The idea that Uber is not profitable is a myth isn’t it? I remember they posted some financial documents a while back that showed them in the red. But when I looked at the papers there were literal billions in advertising and expansion. Uber runs the app. People call an Uber and they pay money. Some of that money goes to the driver and some goes to Uber. You’re really saying that Uber can’t collect enough money to run their computers and pay some staff? It just doesn’t make sense. Of course they can.
  - ta1234567890 5y ago
    > The idea that Uber is not profitable is a myth isn’t it? No, it’s a financial/accounting fact expressed by Uber themselves in their filings as a public company. Having a business model (which is what you are describing), doesn’t make it profitable. Hertz had a business model too, they owned cars, people rented cars and paid money for that. Are you saying Hertz couldn’t collect enough money to run their operations and pay some staff? Well they couldn’t, and they went bankrupt. They were also in the red for several years before the pandemic hit.
  - dogman144 5y ago
    Collecting enough money to pay staff/run servers != profitable. You're asking a cash flow vs. a income statement question. With enough cash flow, yes, can achieve any sort of operational expense that you're referring to. Uber still hasn't turned a profit, and might be able to soon via some creative accounting: https://gizmodo.com/uber-says-its-on-track-to-maybe-make-a-fake-profit-1847716786 https://gizmodo.com/uber-says-its-on-track-to-maybe-make-a-f...
  - junon 5y ago
    > The idea that Uber is not profitable is a myth isn’t it? I worked on the long-term forecasting team while I was there. At least 5-6 years ago, Uber was very, very far from profitable. I can't imagine much has changed enough for it to make them profitable. Maybe with the new CEO things changed but I'm doubtful. That company had a slew of issues.
    - supperburg 5y ago
- edot 5y ago
  Agreed. EBITDA in general is hot garbage, but that is egregious.
- codegeek 5y ago
  "Uber might not have lied about their business" Yea that is what we discussing about Theranos. Theranos was an outright fraud. You cannot say the same about Uber whether they inflated or lied about their profits etc. Uber provides a real service and honestly a good one for people. Theranos on the other hand, played with people's lives by lying about their entire business model and product which never worked. Big difference.
  - MrGando 5y ago
    I think you're somewhat making an argument that the "means" are justified if the end is noble. I think the whole discussion revolts around the several issues with that "system" or "philosophy" here in the Valley. I personally don't think it's the right way to do things. Big fraud, small lies (fraud), it's all pretty bad.
    - codegeek 5y ago
      To some extent, aren't startups supposed to be doing things to challenge the status quo which sometimes can mean that they are breaking rules ? Uber overall has been a net positive in my humble opinion so I definitely think that to an extent, the means are justified if the end is noble.
      - MrGando 5y ago
        If we're going to restraint to personal opinions, my strong personal opinion is that startups have to operate in the context of truth, rule of law and business ethics. That would be my hope. I think it's totally possible to succeed and still work through that lens. I think thinking otherwise, is actually a fallacy perpetuated by certain groups here in the Valley. I strongly believe that you can challenge the status quo and abide by honesty and rule of law.
edot 5y ago
WeWork and Nikola come to mind. Robinhood depending on if you consider purporting yourself to be “stealing from the rich, giving to the poor - Robinhood”, but you actually take orders from Citadel to be fraud. I think a lot of recent IPOs will turn out to be fraud-lite, in which it is shown over the next decade that these companies were pump and dumps that never actually do anything. They look just good enough to garner investment at IPO for initial investors to cash out. Most any company with ML or AI in their branding, running stupid amounts of CNBC ads and repeating their AI name 30 times during the ad.
- mrkramer 5y ago
  WeWork and Theranos were selling hype no real solution or service. They seem like companies from dot com bubble era, I thought tech investors got smarter but they are still as stupid as they were 30 years ago.
  - jollybean 5y ago
    WeWork is different than Theroanos. People actually rented WeWork properties and got a valuable service. The problem was more or less shenanigans on the Exec. side, and unsustainable financial situation. In that case, the 'consumers' actually end up ahead, with a cheaper services than otherwise, then investors lost.
    - HWR_14 5y ago
      >WeWork is different than Theroanos. From my understanding, WeWork was more of a working business that was overvalued and had a lot of self-dealing with the CEO (which I would characterize as embezzling, but may not legally have been.) Theranos invested their money in trying to make an impossible product, lying and failing at it the whole time. But I could be wrong, sensationalist news headlines and such.
      - jollybean 5y ago
        I believe this is correct.
exogeny 5y ago
MagicLeap, Groupon, Nikola, WeWork, Uber.. A company doesn't have to have an exit for early investors to get out. You just need to find a sucker to buy into a round later than you. How to do that, in the modern context, is pretty clear. Either do it through outright fraud (Theranos, Nikola, MagicLeap), extreme FOMO (MagicLeap), or raising so much that you crush competition despite comically bad fundamentals and never get to unit-profitability (Uber, others).
kingTug 5y ago
Robinhood
jborichevskiy 5y ago
Enron, for one https://en.wikipedia.org/wiki/Enron#Peak_and_decline_of_stock_price https://en.wikipedia.org/wiki/Enron#Peak_and_decline_of_stoc...
- sircastor 5y ago
  This is the first one that came to mind for me.
guiriduro 5y ago
Most, if not all SPACs.
danans 5y ago
Still unfolding, but Lordstown Motors looks like exactly that. https://hindenburgresearch.com/lordstown/ https://hindenburgresearch.com/lordstown/
nosianu 5y ago
Do cigarette companies lying about health effects of smoking and Big Oil doing the same about climate change count? Just example links, I think I'm not making any outrageous claims but that this has long been established and discussed here too many times: https://stopswithme.com/exposing-big-tobacco/big-tobacco-found-guilty/ https://stopswithme.com/exposing-big-tobacco/big-tobacco-fou... https://www.theguardian.com/environment/2021/jun/30/climate-crimes-oil-and-gas-environment https://www.theguardian.com/environment/2021/jun/30/climate-... The investors already got theirs many times over. I think you could also include any company that left what became a "super fund site" (US name, similar in other countries). They cannot have believed creating and leaving all that toxic waste in the ground would be a neutral action.
michael1999 5y ago
Groupon.
- elkos 5y ago
  I remember the company/service but I'm unfamiliar with the unfolding of the company.
  - michael1999 5y ago
    They launched their IPO while marginal revenue was still solidly negative; published a bunch of non-standard metrics; and the founders and early investors took out 80% of the money raised even before the IPO. https://en.m.wikipedia.org/wiki/Groupon#Initial_public_offering https://en.m.wikipedia.org/wiki/Groupon#Initial_public_offer...
humaniania 5y ago
Oil companies and their suppression of climate change science.
stagger87 5y ago
MoviePass
- mardifoufs 5y ago
  Movie pass was literally a loss for the vast majority of its investors. If anything it was a wealth transfer from the public/private market to the app users who got extremely subsidized movie tickets. Moviepass was a total loss for it's investors, so how does that not prove the opposite of what's being argued here
  - deleted 5y ago
    [deleted]
  - deleted 5y ago
    [deleted]
  - stagger87 5y ago
    I'm pretty sure early investors cashed out in 2017.
rsynnott 5y ago
Enron, to some extent.
stickfigure 5y ago
The hard part here is "ultimately shown to be dishonest" - who is privy to what is said in boardrooms and sale negotiations? How about just examples where the investors managed to get out just before the bubble popped? The canonical example would be Broadcast.com, which made Mark Cuban a billionaire. https://en.wikipedia.org/wiki/Broadcast.com https://en.wikipedia.org/wiki/Broadcast.com 1998 IPO at $1B valuation 1999 bought by Yahoo! for $5.7B 2002 shut down
effingwewt 5y ago
uBeam.

by avalys 5y ago

Can you provide any examples of a high-profile company, ultimately shown to be dishonest, where the early investors were able to “cash out” before this dishonesty became known?

hef19898 5y ago

Depends on what you call early. Nikola and WeWork come to mind, I assume Newman wasn't the only one to cash out early enough during one of the founding rounds.

ta1234567890 5y ago

Uber Explanation, since this is being downvoted. Uber might not have lied about their business, but it surely looks like investors never cared about the businesses viability and rather only cared about being able to turn a profit on their investment (which was the point being made by the gp). To this day, it is still not clear if Uber’s business model is viable. Also not to mention the original CEO/founder’s reputation and attitude, which the investors also didn’t care about until it became too big of a scandal. Additionally, the investors didn’t even care that Uber was technically illegal (same as Airbnb btw). Some references: https://techcrunch.com/2021/02/12/will-ride-hailing-profits-ever-come/ https://techcrunch.com/2021/02/12/will-ride-hailing-profits-... https://www.marketwatch.com/story/uber-and-lyft-are-staging-a-ridiculous-race-for-fake-profits-11628205337 https://www.marketwatch.com/story/uber-and-lyft-are-staging-... https://www.businessinsider.com/uber-company-scandals-and-controversies-2017-11#january-2012-uber-gets-slammed-in-its-first-major-surge-pricing-backlash-2 https://www.businessinsider.com/uber-company-scandals-and-co...

eli 5y ago
A dishonest company in other ways too. They sent drivers and riders misleading information about any local attempts to regulate them in the slightest. When they first launched UberX in DC, I called them out for a price comparison of Taxi vs UberX that couldn't possibly be true. They quietly changed the blog post and marketing materials shortly after.
Alex3917 5y ago
> which the investors also didn’t care about until it became too big of a scandal More like investors didn't care until they needed liquidity.
supperburg 5y ago
The idea that Uber is not profitable is a myth isn’t it? I remember they posted some financial documents a while back that showed them in the red. But when I looked at the papers there were literal billions in advertising and expansion. Uber runs the app. People call an Uber and they pay money. Some of that money goes to the driver and some goes to Uber. You’re really saying that Uber can’t collect enough money to run their computers and pay some staff? It just doesn’t make sense. Of course they can.
- ta1234567890 5y ago
  > The idea that Uber is not profitable is a myth isn’t it? No, it’s a financial/accounting fact expressed by Uber themselves in their filings as a public company. Having a business model (which is what you are describing), doesn’t make it profitable. Hertz had a business model too, they owned cars, people rented cars and paid money for that. Are you saying Hertz couldn’t collect enough money to run their operations and pay some staff? Well they couldn’t, and they went bankrupt. They were also in the red for several years before the pandemic hit.
- dogman144 5y ago
  Collecting enough money to pay staff/run servers != profitable. You're asking a cash flow vs. a income statement question. With enough cash flow, yes, can achieve any sort of operational expense that you're referring to. Uber still hasn't turned a profit, and might be able to soon via some creative accounting: https://gizmodo.com/uber-says-its-on-track-to-maybe-make-a-fake-profit-1847716786 https://gizmodo.com/uber-says-its-on-track-to-maybe-make-a-f...
- junon 5y ago
  > The idea that Uber is not profitable is a myth isn’t it? I worked on the long-term forecasting team while I was there. At least 5-6 years ago, Uber was very, very far from profitable. I can't imagine much has changed enough for it to make them profitable. Maybe with the new CEO things changed but I'm doubtful. That company had a slew of issues.
  - supperburg 5y ago
edot 5y ago
Agreed. EBITDA in general is hot garbage, but that is egregious.
codegeek 5y ago
"Uber might not have lied about their business" Yea that is what we discussing about Theranos. Theranos was an outright fraud. You cannot say the same about Uber whether they inflated or lied about their profits etc. Uber provides a real service and honestly a good one for people. Theranos on the other hand, played with people's lives by lying about their entire business model and product which never worked. Big difference.
- MrGando 5y ago
  I think you're somewhat making an argument that the "means" are justified if the end is noble. I think the whole discussion revolts around the several issues with that "system" or "philosophy" here in the Valley. I personally don't think it's the right way to do things. Big fraud, small lies (fraud), it's all pretty bad.
  - codegeek 5y ago
    To some extent, aren't startups supposed to be doing things to challenge the status quo which sometimes can mean that they are breaking rules ? Uber overall has been a net positive in my humble opinion so I definitely think that to an extent, the means are justified if the end is noble.
    - MrGando 5y ago
      If we're going to restraint to personal opinions, my strong personal opinion is that startups have to operate in the context of truth, rule of law and business ethics. That would be my hope. I think it's totally possible to succeed and still work through that lens. I think thinking otherwise, is actually a fallacy perpetuated by certain groups here in the Valley. I strongly believe that you can challenge the status quo and abide by honesty and rule of law.

edot 5y ago

WeWork and Nikola come to mind. Robinhood depending on if you consider purporting yourself to be “stealing from the rich, giving to the poor - Robinhood”, but you actually take orders from Citadel to be fraud. I think a lot of recent IPOs will turn out to be fraud-lite, in which it is shown over the next decade that these companies were pump and dumps that never actually do anything. They look just good enough to garner investment at IPO for initial investors to cash out. Most any company with ML or AI in their branding, running stupid amounts of CNBC ads and repeating their AI name 30 times during the ad.

mrkramer 5y ago
WeWork and Theranos were selling hype no real solution or service. They seem like companies from dot com bubble era, I thought tech investors got smarter but they are still as stupid as they were 30 years ago.
- jollybean 5y ago
  WeWork is different than Theroanos. People actually rented WeWork properties and got a valuable service. The problem was more or less shenanigans on the Exec. side, and unsustainable financial situation. In that case, the 'consumers' actually end up ahead, with a cheaper services than otherwise, then investors lost.
  - HWR_14 5y ago
    >WeWork is different than Theroanos. From my understanding, WeWork was more of a working business that was overvalued and had a lot of self-dealing with the CEO (which I would characterize as embezzling, but may not legally have been.) Theranos invested their money in trying to make an impossible product, lying and failing at it the whole time. But I could be wrong, sensationalist news headlines and such.
    - jollybean 5y ago
      I believe this is correct.

exogeny 5y ago

MagicLeap, Groupon, Nikola, WeWork, Uber.. A company doesn't have to have an exit for early investors to get out. You just need to find a sucker to buy into a round later than you. How to do that, in the modern context, is pretty clear. Either do it through outright fraud (Theranos, Nikola, MagicLeap), extreme FOMO (MagicLeap), or raising so much that you crush competition despite comically bad fundamentals and never get to unit-profitability (Uber, others).

kingTug 5y ago

Robinhood

jborichevskiy 5y ago

Enron, for one https://en.wikipedia.org/wiki/Enron#Peak_and_decline_of_stock_price https://en.wikipedia.org/wiki/Enron#Peak_and_decline_of_stoc...

sircastor 5y ago
This is the first one that came to mind for me.

guiriduro 5y ago

Most, if not all SPACs.

danans 5y ago

Still unfolding, but Lordstown Motors looks like exactly that. https://hindenburgresearch.com/lordstown/ https://hindenburgresearch.com/lordstown/

nosianu 5y ago

Do cigarette companies lying about health effects of smoking and Big Oil doing the same about climate change count? Just example links, I think I'm not making any outrageous claims but that this has long been established and discussed here too many times: https://stopswithme.com/exposing-big-tobacco/big-tobacco-found-guilty/ https://stopswithme.com/exposing-big-tobacco/big-tobacco-fou... https://www.theguardian.com/environment/2021/jun/30/climate-crimes-oil-and-gas-environment https://www.theguardian.com/environment/2021/jun/30/climate-... The investors already got theirs many times over. I think you could also include any company that left what became a "super fund site" (US name, similar in other countries). They cannot have believed creating and leaving all that toxic waste in the ground would be a neutral action.

michael1999 5y ago

Groupon.

elkos 5y ago
I remember the company/service but I'm unfamiliar with the unfolding of the company.
- michael1999 5y ago
  They launched their IPO while marginal revenue was still solidly negative; published a bunch of non-standard metrics; and the founders and early investors took out 80% of the money raised even before the IPO. https://en.m.wikipedia.org/wiki/Groupon#Initial_public_offering https://en.m.wikipedia.org/wiki/Groupon#Initial_public_offer...

humaniania 5y ago

Oil companies and their suppression of climate change science.

stagger87 5y ago

MoviePass

mardifoufs 5y ago
Movie pass was literally a loss for the vast majority of its investors. If anything it was a wealth transfer from the public/private market to the app users who got extremely subsidized movie tickets. Moviepass was a total loss for it's investors, so how does that not prove the opposite of what's being argued here
- deleted 5y ago
  [deleted]
- deleted 5y ago
  [deleted]
- stagger87 5y ago
  I'm pretty sure early investors cashed out in 2017.

rsynnott 5y ago

Enron, to some extent.

stickfigure 5y ago

The hard part here is "ultimately shown to be dishonest" - who is privy to what is said in boardrooms and sale negotiations? How about just examples where the investors managed to get out just before the bubble popped? The canonical example would be Broadcast.com, which made Mark Cuban a billionaire. https://en.wikipedia.org/wiki/Broadcast.com https://en.wikipedia.org/wiki/Broadcast.com 1998 IPO at $1B valuation 1999 bought by Yahoo! for $5.7B 2002 shut down

effingwewt 5y ago

uBeam.