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I still think most VCs will feel that super thorough verification isn't necessary, and in retrospect I agree: 1. Cases like the All Here example are kinda baff

I still think most VCs will feel that super thorough verification isn't necessary, and in retrospect I agree: 1. Cases like the All Here example are kinda baffling to me. It's like the founder jumped out of a window without a parachute and was like "This is fine! I'll learn to fly before I hit the ground." I think in cases that are as egregious as this, the fraud is eventually discovered, if only because at some point it has to become blatantly obvious. 2. If by some miracle the fraudulent founder does manage to "make it" before their "fake it" is discovered, well then, honestly good for them I guess. VCs tend not to get too angry if you make them a ton of money. Point being, in cases like this All Here one, the "Frank" company fraud by CEO Charlie Javice, Theranos, etc. were all examples that were pretty much guaranteed to be discovered at some point (and pretty soon at that), because none of their tech had any hope of working in the first place. As an analogy, it's also pretty easy to write bad checks, but they're also likely to be discovered very quickly, with the check scammer going to jail, so banks just consider it the cost of doing business.

blackeyeblitzar 2y ago
> It's like the founder jumped out of a window without a parachute and was like "This is fine! I'll learn to fly before I hit the ground." I think in cases that are as egregious as this, the fraud is eventually discovered, if only because at some point it has to become blatantly obvious. I think their goal was to use false figures to attract investment that would lead to real revenue that would eventually cover up the alleged fraud. If they managed to build a good product and find market fit and revenue with their Series A funds, maybe it would have worked. What’s weird though is that all these investors didn’t do basic diligence to confirm the money flows that were claimed. It’s a bit different from the Theranos fraud, where the fraud was around the effectiveness of a highly complicated and secretive product rather than revenues that are easy to confirm with bank statements.
- throwup238 2y ago
  > It’s a bit different from the Theranos fraud, where the fraud was around the effectiveness of a highly complicated and secretive product rather than revenues that are easy to confirm with bank statements. Anyone who did the bare minimum of due diligence found out from experts that blood from finger pricks is not usable for the kind of diagnostics they were proposing, which is why no qualified biotech VC invested in them. It was all dumb money like Ruper Murdoch and tech investors Tim Draper/DFJ who have no idea what they're doing in biotech. Investors didn't even need to look in the books or research, it prima facie was not going to work.
  - JumpCrisscross 2y ago
    > Anyone who did the bare minimum of due diligence found out from experts that blood from finger pricks is not usable for the kind of diagnostics they were proposing This is technical risk, however. I remember experts telling me in 2009 that SpaceX was fundamentally fucked. Financial fraud is way more black and white because it’s backward looking.
    - throwup238 2y ago
      Just because some tech investors got caught up in the hype doesn’t mean it was a real technical risk. Finger capillary blood is fundamentally unrepresentative of blood samples taken from veins with few exceptions. Doctors and scientists have known this for a long time. Theranos’ technology was never going to work the way they sold it, and if they sold it as a faster on-site diagnostic device with standard blood draws they would have been just another in a sea of diagnostics startups that few care about.
    - hn_throwaway_99 2y ago
      > I remember experts telling me in 2009 that SpaceX was fundamentally fucked. That is a very poor analogy to Theranos' situation. In SpaceX's case, there is obviously nothing fundamentally impossible about using rockets to get stuff into space - humans have obviously been doing that for quite some time now. I'm guessing the experts you talked to were more making economic arguments, or making arguments that the stuff SpaceX was proposing doing would be too phenomenally difficult before the money ran out. That's very, very different from "physically impossible". Getting accurate quantitative tests from finger pricks is not "technical risk". It is physically impossible because capillary blood is simply not homogeneous enough at the proposed volumes. There was literally nothing of value that came out of any of Theranos' technology - it wasn't just a case of them not reaching sustainability before their runway ran out.
      - JumpCrisscross 2y ago
        Ex post facto the arguments are obviously different. I have a background in aerospace engineering, and so was able to weigh and dismiss these experts’ conclusions. (They weren’t just economic. But they were biased.) The point is consulting experts isn’t a fool-proof investing strategy. It will produce false negatives around paradigm-changing approaches while potentially bandwagonning on dead ends, e.g. amyloid plaques for Alzheimer’s.
nikanj 2y ago
It's usually "This is fine! We'll use $BUZZWORD to fly before I hit the ground." I still remember the countless startups where the business model was basically "You give us money by the boatload, and we promise to use the word blockchain in every presentation"
- DonHopkins 2y ago
  That makes sense, because they're just laundering the money, by definition.
  - JumpCrisscross 2y ago
    > they're just laundering the money, by definition By definition, no. You need "money obtained from illicit activities" [1]. [1] https://en.wikipedia.org/wiki/Money_laundering https://en.wikipedia.org/wiki/Money_laundering
khuey 2y ago
> 2. If by some miracle the fraudulent founder does manage to "make it" before their "fake it" is discovered, well then, honestly good for them I guess. VCs tend not to get too angry if you make them a ton of money. For obvious reasons relating to perverse incentives "making it after faking it" doesn't get you out of legal jeopardy. None of Martin Shkreli's investors ultimately lost money but he still went to prison and had enormous fines imposed.

blackeyeblitzar 2y ago

> It's like the founder jumped out of a window without a parachute and was like "This is fine! I'll learn to fly before I hit the ground." I think in cases that are as egregious as this, the fraud is eventually discovered, if only because at some point it has to become blatantly obvious. I think their goal was to use false figures to attract investment that would lead to real revenue that would eventually cover up the alleged fraud. If they managed to build a good product and find market fit and revenue with their Series A funds, maybe it would have worked. What’s weird though is that all these investors didn’t do basic diligence to confirm the money flows that were claimed. It’s a bit different from the Theranos fraud, where the fraud was around the effectiveness of a highly complicated and secretive product rather than revenues that are easy to confirm with bank statements.

throwup238 2y ago
> It’s a bit different from the Theranos fraud, where the fraud was around the effectiveness of a highly complicated and secretive product rather than revenues that are easy to confirm with bank statements. Anyone who did the bare minimum of due diligence found out from experts that blood from finger pricks is not usable for the kind of diagnostics they were proposing, which is why no qualified biotech VC invested in them. It was all dumb money like Ruper Murdoch and tech investors Tim Draper/DFJ who have no idea what they're doing in biotech. Investors didn't even need to look in the books or research, it prima facie was not going to work.
- JumpCrisscross 2y ago
  > Anyone who did the bare minimum of due diligence found out from experts that blood from finger pricks is not usable for the kind of diagnostics they were proposing This is technical risk, however. I remember experts telling me in 2009 that SpaceX was fundamentally fucked. Financial fraud is way more black and white because it’s backward looking.
  - throwup238 2y ago
    Just because some tech investors got caught up in the hype doesn’t mean it was a real technical risk. Finger capillary blood is fundamentally unrepresentative of blood samples taken from veins with few exceptions. Doctors and scientists have known this for a long time. Theranos’ technology was never going to work the way they sold it, and if they sold it as a faster on-site diagnostic device with standard blood draws they would have been just another in a sea of diagnostics startups that few care about.
  - hn_throwaway_99 2y ago
    > I remember experts telling me in 2009 that SpaceX was fundamentally fucked. That is a very poor analogy to Theranos' situation. In SpaceX's case, there is obviously nothing fundamentally impossible about using rockets to get stuff into space - humans have obviously been doing that for quite some time now. I'm guessing the experts you talked to were more making economic arguments, or making arguments that the stuff SpaceX was proposing doing would be too phenomenally difficult before the money ran out. That's very, very different from "physically impossible". Getting accurate quantitative tests from finger pricks is not "technical risk". It is physically impossible because capillary blood is simply not homogeneous enough at the proposed volumes. There was literally nothing of value that came out of any of Theranos' technology - it wasn't just a case of them not reaching sustainability before their runway ran out.
    - JumpCrisscross 2y ago
      Ex post facto the arguments are obviously different. I have a background in aerospace engineering, and so was able to weigh and dismiss these experts’ conclusions. (They weren’t just economic. But they were biased.) The point is consulting experts isn’t a fool-proof investing strategy. It will produce false negatives around paradigm-changing approaches while potentially bandwagonning on dead ends, e.g. amyloid plaques for Alzheimer’s.

nikanj 2y ago

It's usually "This is fine! We'll use $BUZZWORD to fly before I hit the ground." I still remember the countless startups where the business model was basically "You give us money by the boatload, and we promise to use the word blockchain in every presentation"

DonHopkins 2y ago
That makes sense, because they're just laundering the money, by definition.
- JumpCrisscross 2y ago
  > they're just laundering the money, by definition By definition, no. You need "money obtained from illicit activities" [1]. [1] https://en.wikipedia.org/wiki/Money_laundering https://en.wikipedia.org/wiki/Money_laundering

khuey 2y ago

> 2. If by some miracle the fraudulent founder does manage to "make it" before their "fake it" is discovered, well then, honestly good for them I guess. VCs tend not to get too angry if you make them a ton of money. For obvious reasons relating to perverse incentives "making it after faking it" doesn't get you out of legal jeopardy. None of Martin Shkreli's investors ultimately lost money but he still went to prison and had enormous fines imposed.