4 ms·

On one side, sure this is fraud, but I've got to admit that I enjoy seeing VCs getting ripped off that way. It literally takes 10 minutes and some free tools to

by janmo 5y ago

On one side, sure this is fraud, but I've got to admit that I enjoy seeing VCs getting ripped off that way. It literally takes 10 minutes and some free tools to debunk OZY Medias claims. Yet, big names poured over $70 million at them. Too bad that Goldman Sachs did not fell for it as well. I did work for a VC myself, and it got ripped off by a founder who had already a criminal record for fraud, was on parole, and was not even allowed to be the CEO of a company... They gave him over $10 million, and it was more than obvious that his website was fishy, but they were completely fascinated by how much his crappy website was already making... Edit: this was the state of my knowledge back in 2017, I've googled what happened since. He had to step down from his functions, was convicted to pay a fine for running a company despite having being bared to do so. There is also a civil suit against him that has not been settled yet it seems. It does not look like that he was charged with fraud or anything else than running a company despite being bared to do so. It appears that he has started a new business in the Crypto space now. Note that this story happened in Germany and you don't go to jail easily here. His former startup went bankrupt but was acquired out of bankruptcy and found a new owner. He reduced the employee count from 100 to 20, scrapped all expansion plans to refocus on its core market and was able to make the company profitable in 2019.

andreilys 5y ago
It’s surprising that companies have their employees do all kinds of background checks (criminal and otherwise), but VC’s deploying millions of capital dont do the same. Maybe no skin in the game skin they’re just investing LP money? Strange either way.
- janmo 5y ago
  To be fair, I am in Europe, and background checks are rather the exception than the norm here. In fact there are only very few jobs where companies are allowed to run background checks. This includes: Banking, security, teaching and government jobs.
  - bellyfullofbac 5y ago
    After reading about Kim Dotcom and seeing how he had a glorious lifestyle with his "investors's" money and avoided jail, and even ended up an Internet folk hero after the MAFIAA used law enforcement to harass him, I sometimes wonder if it's not easier to be a criminal..
  - google234123 5y ago
    > government jobs That's convenient for the government.
  - blowski 5y ago
    I didn’t realise European companies aren’t, in general, allowed to run background checks. Do you have more detail on that?
    - ThePadawan 5y ago
      As an example, I worked (as a third party) for a bank once. The way the system here in Switzerland works is thus: The government has an office which supplies a certificate that says "this person has not had criminal charges pressed against them for the crimes X, Y and Z for the last N years". A bank can demand (and did, in my case) this certificate from new employees for crimes like Fraud and violent crimes (I assume). The job candidate requests the certificate from the government and hands a copy over to the company. Obviously if they know they would fail, they don't have to do this part, and can simply stop pursuing the job instead. IIRC (this wasn't relevant for me), a company weren't allowed to simply ask for a wildcard certificate, it had to be reasonable for the job.
- deleted 5y ago
  [deleted]
hn_throwaway_99 5y ago
On the other hand, though, part of the reason for this is just math. For a VC, missing out on a "unicorn of unicorns" investment can have dire consequences. IIRC at one point YC said that the vast majority of their value was from just AirBnB, Dropbox and Stripe (may have changed since I remember reading this). But VCs exist in companies that fail all the time for a myriad of reasons. So putting in 10 million in a company that turns out to be a scam is probably not that big of a deal for most sizable VCs. With that level of asymmetry it's not surprising that FOMO is the driving force here.
- elliekelly 5y ago
  What’s the math on hiring a college kid to sanity check the viewer numbers before wiring the money? It’s not math. It’s a policy of deliberate ignorance. Because the dirty secret of VCs is that a not insignificant portion of their value-add is building the hype train and betting the business will eventually catch up to it.
  - manigandham 5y ago
    It’s not that simple because of the quantity and velocity of the deal flow. In depth due diligence can take weeks and considering how rare these situations are, it’s usually not worth possibly missing a deal. It also depends on getting accurate information in the first place and a private company can hide a lot. There’s also the condition that VCs might have found out and passed but won’t really make much noise about it. They usually don’t have much to gain in calling out “bad” deals and can even hurt them in the future so they stay quiet, for better or worse.
no_butterscotch 5y ago
For many of these VCs their investment was similar to investing in Theranos. The founders' story, and as controversial as it may be to say, their demographic, was what was being invested in. Similar to how Elizabeth Holmes had money thrown at her for being a #girlboss, Ozy's CEO and COO were both "people of color". It's that last point that's been bandied about in social media a lot over the past few days, claims that the NYT is attacking a business because it's led by people of color. For instance the Ford Foundation, one of the company's investors, said: "in an increasingly diverse world, it's no wonder a company founded by people of color is so successful." This was after the NYT article. (source: https://youtu.be/1pE9yqE5yMk?t=314 https://youtu.be/1pE9yqE5yMk?t=314). These investors just wanted to increase the number of companies they're invested in that are from people of color, even if the business fundamentals aren't legitimate.
- wesleywt 5y ago
  You can really hamfist identity politics into any conversation.
- vmception 5y ago
  I don't get that impression about Ozy. I think you picked the worst example to highlight something that is also happening. This is more likely that individuals read about how to play around with metrics because they couldn't believe that other companies were doing so, and they tried it themselves, and to their surprise VCs came out of the woodwork and didn't gatekeep by race at all. This is much more similar to Blazing Saddles when the frontier town was perplexed that the new Mayor was black and the Mayor realized how dumb they all truly were and played with their emotions with a funny ruse.
deleted 5y ago
[deleted]
atombender 5y ago
There seems to have been so much fraud in crypto. It's a space that seems ripe for grifters. The craziest story (which sounds a bit like your guy) I encountered was that of Shaun MacDonald [1], founder of two crypto companies called BCT and CG Blockchain. A company I worked for signed a business deal with BTC before they went under in 2019. MacDonald was later revealed to be a convicted Canadian white-collar criminal with the unlikely name of Boaz Manor, who had stolen millions of dollars from hedge funds and who appears to have absconded with millions worth in diamonds [2] (!). BCT/CG Blockchain turned out to be a scam, too. [3] [1] https://torontolife.com/city/boaz-manor-toronto-crypto-fraud-blockchain-terminal/ https://torontolife.com/city/boaz-manor-toronto-crypto-fraud... [2] https://www.theglobeandmail.com/report-on-business/rob-magazine/where-are-the-portus-diamonds/article4651756/ https://www.theglobeandmail.com/report-on-business/rob-magaz... [3] https://protos.com/boaz-manor-blockchain-terminal-sec-lawsuit-new-names/ https://protos.com/boaz-manor-blockchain-terminal-sec-lawsui...

by janmo 5y ago

andreilys 5y ago

It’s surprising that companies have their employees do all kinds of background checks (criminal and otherwise), but VC’s deploying millions of capital dont do the same. Maybe no skin in the game skin they’re just investing LP money? Strange either way.

janmo 5y ago
To be fair, I am in Europe, and background checks are rather the exception than the norm here. In fact there are only very few jobs where companies are allowed to run background checks. This includes: Banking, security, teaching and government jobs.
- bellyfullofbac 5y ago
  After reading about Kim Dotcom and seeing how he had a glorious lifestyle with his "investors's" money and avoided jail, and even ended up an Internet folk hero after the MAFIAA used law enforcement to harass him, I sometimes wonder if it's not easier to be a criminal..
- google234123 5y ago
  > government jobs That's convenient for the government.
- blowski 5y ago
  I didn’t realise European companies aren’t, in general, allowed to run background checks. Do you have more detail on that?
  - ThePadawan 5y ago
    As an example, I worked (as a third party) for a bank once. The way the system here in Switzerland works is thus: The government has an office which supplies a certificate that says "this person has not had criminal charges pressed against them for the crimes X, Y and Z for the last N years". A bank can demand (and did, in my case) this certificate from new employees for crimes like Fraud and violent crimes (I assume). The job candidate requests the certificate from the government and hands a copy over to the company. Obviously if they know they would fail, they don't have to do this part, and can simply stop pursuing the job instead. IIRC (this wasn't relevant for me), a company weren't allowed to simply ask for a wildcard certificate, it had to be reasonable for the job.
deleted 5y ago
[deleted]

hn_throwaway_99 5y ago

On the other hand, though, part of the reason for this is just math. For a VC, missing out on a "unicorn of unicorns" investment can have dire consequences. IIRC at one point YC said that the vast majority of their value was from just AirBnB, Dropbox and Stripe (may have changed since I remember reading this). But VCs exist in companies that fail all the time for a myriad of reasons. So putting in 10 million in a company that turns out to be a scam is probably not that big of a deal for most sizable VCs. With that level of asymmetry it's not surprising that FOMO is the driving force here.

elliekelly 5y ago
What’s the math on hiring a college kid to sanity check the viewer numbers before wiring the money? It’s not math. It’s a policy of deliberate ignorance. Because the dirty secret of VCs is that a not insignificant portion of their value-add is building the hype train and betting the business will eventually catch up to it.
- manigandham 5y ago
  It’s not that simple because of the quantity and velocity of the deal flow. In depth due diligence can take weeks and considering how rare these situations are, it’s usually not worth possibly missing a deal. It also depends on getting accurate information in the first place and a private company can hide a lot. There’s also the condition that VCs might have found out and passed but won’t really make much noise about it. They usually don’t have much to gain in calling out “bad” deals and can even hurt them in the future so they stay quiet, for better or worse.

no_butterscotch 5y ago

For many of these VCs their investment was similar to investing in Theranos. The founders' story, and as controversial as it may be to say, their demographic, was what was being invested in. Similar to how Elizabeth Holmes had money thrown at her for being a #girlboss, Ozy's CEO and COO were both "people of color". It's that last point that's been bandied about in social media a lot over the past few days, claims that the NYT is attacking a business because it's led by people of color. For instance the Ford Foundation, one of the company's investors, said: "in an increasingly diverse world, it's no wonder a company founded by people of color is so successful." This was after the NYT article. (source: https://youtu.be/1pE9yqE5yMk?t=314 https://youtu.be/1pE9yqE5yMk?t=314). These investors just wanted to increase the number of companies they're invested in that are from people of color, even if the business fundamentals aren't legitimate.

wesleywt 5y ago
You can really hamfist identity politics into any conversation.
vmception 5y ago
I don't get that impression about Ozy. I think you picked the worst example to highlight something that is also happening. This is more likely that individuals read about how to play around with metrics because they couldn't believe that other companies were doing so, and they tried it themselves, and to their surprise VCs came out of the woodwork and didn't gatekeep by race at all. This is much more similar to Blazing Saddles when the frontier town was perplexed that the new Mayor was black and the Mayor realized how dumb they all truly were and played with their emotions with a funny ruse.

deleted 5y ago

[deleted]

atombender 5y ago

There seems to have been so much fraud in crypto. It's a space that seems ripe for grifters. The craziest story (which sounds a bit like your guy) I encountered was that of Shaun MacDonald [1], founder of two crypto companies called BCT and CG Blockchain. A company I worked for signed a business deal with BTC before they went under in 2019. MacDonald was later revealed to be a convicted Canadian white-collar criminal with the unlikely name of Boaz Manor, who had stolen millions of dollars from hedge funds and who appears to have absconded with millions worth in diamonds [2] (!). BCT/CG Blockchain turned out to be a scam, too. [3] [1] https://torontolife.com/city/boaz-manor-toronto-crypto-fraud-blockchain-terminal/ https://torontolife.com/city/boaz-manor-toronto-crypto-fraud... [2] https://www.theglobeandmail.com/report-on-business/rob-magazine/where-are-the-portus-diamonds/article4651756/ https://www.theglobeandmail.com/report-on-business/rob-magaz... [3] https://protos.com/boaz-manor-blockchain-terminal-sec-lawsuit-new-names/ https://protos.com/boaz-manor-blockchain-terminal-sec-lawsui...