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“Our theoretical framework captures how entrepreneurs facing minor, wide, and extreme expectation-reality gaps engage in evermore sophisticated efforts to detac

“Our theoretical framework captures how entrepreneurs facing minor, wide, and extreme expectation-reality gaps engage in evermore sophisticated efforts to detach the venture’s externally projected appearance from its actual operational reality.” Look, I’m not promoting fraud at all, but having been doing seed raising for the last eight months, there have been many times where I thought the only way to compete was by fudging the numbers (because everyone else is, basically). It’s one of several reasons I left this game and am pursuing non-traditional means of funding now.

sjsdaiuasgdia 2mo ago
Good on you for saying no to committing fraud! It really sucks that this is unusual enough that it warrants a bit of positive feedback!
- aliasxneo 2mo ago
  I’m really not trying to virtue signal. There’s a lot more nuance to my reasoning to leave the traditional VC game. All of them led me to declaring it fundamentally incompatible with my world view. Which then led me to my current path of attempting to form a syndicate of like-minded individuals. But this study validates a lot of feelings I’ve had over the last several months. There’s a ton of people that never get caught, of course.
  - sjsdaiuasgdia 2mo ago
    Oh, I did not take it as virtue signaling at all! I do actually admire you for looking at a dirty game and saying "I will not play this, I will find a better way." If I ever win the lottery, I'm going to create the Joseph Welch Foundation. The foundation will give monetary awards to people who have demonstrably pushed back against corruption, lies, and bullshit. For those who don't recognize the name, Joseph Welch is who said "Have you no sense of decency, sir, at long last, have you left no sense of decency?" to Joseph McCarthy. Too few people remember Welch. McCarthy was the asshole but his name is remembered more. I see this as an error we have made with our societal memory. It would be better to remember Welch, and only remember McCarthy as "that red scare guy".
    - ryandrake 2mo ago
      What we should be doing, as a civilized society with rules and a regulatory apparatus that's woefully underused, is looking at the dirty game and saying "The game is over. The people/government is going to finally crack down on fraud and people who play the game are going to prison."
      - sjsdaiuasgdia 2mo ago
        I absolutely agree. We need strong rule of law, and we need to start holding everyone accountable to the law. The era of "I'm too rich / popular / influential / 'important' to prosecute" must end.
        timacles 2mo ago
        well i've got some bad news, that era has now entered its maximum power phase. Our government has literally been systematically deconstructed to become unable to govern.
        sjsdaiuasgdia 2mo ago
        Lol that's not news. It does sound like you might be giving / have given up though? Fuck that.
    - andsoitis 2mo ago
      > If I ever win the lottery Now there’s a disgusting game.
      - sjsdaiuasgdia 2mo ago
        It is, in the sense that it often acts as a tax on people who can least afford it. The occasional lottery ticket does not particularly affect my budget, so I buy one now and then with the intent to use it for good should I win.
    - brazukadev 2mo ago
sedawkgrep 2mo ago
Thank you for having an ethical standard and the will to adhere to it.
throwaway89864 2mo ago
Was it fudging expected numbers (forecast), or fudging actual numbers (revenue, etc)? VCs are looking for a long-tail, if you have a 1% chance at 5B - 1T market, this is more interesting and impactful than 10% chance at 5M market. And yes, 1% chance of success is considered to be unrealistic by common sense standards.
- satvikpendem 2mo ago
  Ergodicity. For you as an individual startup it is low but a VC looks at a portfolio and at a given size it is almost guaranteed to win.
- aliasxneo 2mo ago
  From my experience they wanted you to demonstrate enough metrics that would have justified NOT ever getting VC funding. It feels like they are just becoming lazy.
- e40 2mo ago
  IME, it's about pushing you to overextend on the forecast, so that when you don't meet it, they get more control or claw back funds promised or given. Fudging actual numbers is a dangerous and illegal game to play and never pays off, except in the edge cases (e.g., Enron... but usually you have to pay the Piper).
  - lumost 2mo ago
    Interesting, this presents an meta for an early stage investor. Fund a company with a BS forecast based on your ability to make money on the claw back provisions.
    - ElProlactin 2mo ago
      You're never going to make money from that. By the time you're presented with the opportunity to use them, you're on the losing end.
    - e40 2mo ago
close04 2mo ago
You highlighted the basis for widespread corruption. At some point you no longer do it to get an unfair advantage, you do it because without it you get an unfair disadvantage. Widespread fraud is no different.
satvikpendem 2mo ago
What is nontraditional? Seems like it could be even more rife with fraud with lower oversight.
- yieldcrv 2mo ago
  There’s more to capital than dilutive capital But yes lots of ways to lose money with even less recourse
- aliasxneo 2mo ago
  Probably a bad qualifier. Maybe non-VC would have been better. Myself and my co-founder are trying to raise via a syndicate of like-minded investors/angels in lieue of the "traditional" VC dance.
  - hn_throwaway_99 2mo ago
    How is that going? I ask because just recently I read a post from someone I know who is getting out of the angel investing game. Her primary complaint is that in a couple early stage investments she made that then were successful enough to go on to a VC series round that early angel investors got shafted. That is, there was a strong desire from VCs to "clean up the cap table" and buy out early stage angels just as the business was starting to accelerate. There was some definite bitterness in her tone, feeling like she went out on a limb for some founders before the business was proven out, and then got dumped once the deeper pockets came along. I don't know the details of her situation, what else she could have done to protect her investments, or how common an experience that was, but there were many comments in agreement under her post, so I'm just curious if it's widespread.
  - skeeter2020 2mo ago
    This is where PE came from originally, but then scaled to commercial bank / pension fund levels of investment. At least VC and Founders are aligned and honest about their goals (to the moon!); I've seen PE destroy more solid / non-rocketship businesses than VC
sandeepkd 2mo ago
My understanding so far is that as humans we get bounded by our emotions, morals, incentives and fears. On the other hand you are competing against capitalism that tries to use any possible means to make profits. It treads along every possible path of whats not completely illegal. What benefits it is that either the laws are not yet defined to cover those situations or they are hazy enough that there is an escape hatch. You name any big company and they have gone through the path of doing something that was illegal or questioned. Just like critical mass or escape velocity, if you are big enough you get through the hurdles or otherwise you get stuck and make a good topic in some ones paper like this.
pcurve 2mo ago
I'm guessing investors understand that there's high probability of the numbers being 'optimistic'.
m3047 2mo ago
I spent a few years hanging around the VC-adjacent scene in a major city, met quite a few of them (because I'm that way. elevator docent during events... priceless). There is publicly performed theater around VCs which is pretty consistent, taught in incubators, etc., etc. So that's how they manage set and setting (grooming) for the marks. Internally there are certain tells, that they must act a certain way. There are arbitrary character tests and whatnot which provoke a "culture" if you will, similarly to how computer languages and tech stacks form distinctive cultures if left unchecked; there could be self-selecting pressures (for these behaviors) as well. This is unsurprising to me as someone who analyzed voting patterns, and was asked numerous times variations on the question "is it something in the water or 'new car smell'?" (I don't have an answer for that question.) However VCs are much more stovepiped and cliquish concerning their actual selection process than people realize, I've heard it publicly described as "mafia like" by someone who I worked for and whose name many would recognize. I don't understand why this person, like so many others, invested so much effort... enough to get some serious butthurt IMO. It's a distraction, it effectively destroyed a different company I was working for.

sjsdaiuasgdia 2mo ago

Good on you for saying no to committing fraud! It really sucks that this is unusual enough that it warrants a bit of positive feedback!

aliasxneo 2mo ago
I’m really not trying to virtue signal. There’s a lot more nuance to my reasoning to leave the traditional VC game. All of them led me to declaring it fundamentally incompatible with my world view. Which then led me to my current path of attempting to form a syndicate of like-minded individuals. But this study validates a lot of feelings I’ve had over the last several months. There’s a ton of people that never get caught, of course.
- sjsdaiuasgdia 2mo ago
  Oh, I did not take it as virtue signaling at all! I do actually admire you for looking at a dirty game and saying "I will not play this, I will find a better way." If I ever win the lottery, I'm going to create the Joseph Welch Foundation. The foundation will give monetary awards to people who have demonstrably pushed back against corruption, lies, and bullshit. For those who don't recognize the name, Joseph Welch is who said "Have you no sense of decency, sir, at long last, have you left no sense of decency?" to Joseph McCarthy. Too few people remember Welch. McCarthy was the asshole but his name is remembered more. I see this as an error we have made with our societal memory. It would be better to remember Welch, and only remember McCarthy as "that red scare guy".
  - ryandrake 2mo ago
    What we should be doing, as a civilized society with rules and a regulatory apparatus that's woefully underused, is looking at the dirty game and saying "The game is over. The people/government is going to finally crack down on fraud and people who play the game are going to prison."
    - sjsdaiuasgdia 2mo ago
      I absolutely agree. We need strong rule of law, and we need to start holding everyone accountable to the law. The era of "I'm too rich / popular / influential / 'important' to prosecute" must end.
      - timacles 2mo ago
        well i've got some bad news, that era has now entered its maximum power phase. Our government has literally been systematically deconstructed to become unable to govern.
        sjsdaiuasgdia 2mo ago
        Lol that's not news. It does sound like you might be giving / have given up though? Fuck that.
  - andsoitis 2mo ago
    > If I ever win the lottery Now there’s a disgusting game.
    - sjsdaiuasgdia 2mo ago
      It is, in the sense that it often acts as a tax on people who can least afford it. The occasional lottery ticket does not particularly affect my budget, so I buy one now and then with the intent to use it for good should I win.
  - brazukadev 2mo ago

sedawkgrep 2mo ago

Thank you for having an ethical standard and the will to adhere to it.

throwaway89864 2mo ago

Was it fudging expected numbers (forecast), or fudging actual numbers (revenue, etc)? VCs are looking for a long-tail, if you have a 1% chance at 5B - 1T market, this is more interesting and impactful than 10% chance at 5M market. And yes, 1% chance of success is considered to be unrealistic by common sense standards.

satvikpendem 2mo ago
Ergodicity. For you as an individual startup it is low but a VC looks at a portfolio and at a given size it is almost guaranteed to win.
aliasxneo 2mo ago
From my experience they wanted you to demonstrate enough metrics that would have justified NOT ever getting VC funding. It feels like they are just becoming lazy.
e40 2mo ago
IME, it's about pushing you to overextend on the forecast, so that when you don't meet it, they get more control or claw back funds promised or given. Fudging actual numbers is a dangerous and illegal game to play and never pays off, except in the edge cases (e.g., Enron... but usually you have to pay the Piper).
- lumost 2mo ago
  Interesting, this presents an meta for an early stage investor. Fund a company with a BS forecast based on your ability to make money on the claw back provisions.
  - ElProlactin 2mo ago
    You're never going to make money from that. By the time you're presented with the opportunity to use them, you're on the losing end.
  - e40 2mo ago

close04 2mo ago

You highlighted the basis for widespread corruption. At some point you no longer do it to get an unfair advantage, you do it because without it you get an unfair disadvantage. Widespread fraud is no different.

satvikpendem 2mo ago

What is nontraditional? Seems like it could be even more rife with fraud with lower oversight.

yieldcrv 2mo ago
There’s more to capital than dilutive capital But yes lots of ways to lose money with even less recourse
aliasxneo 2mo ago
Probably a bad qualifier. Maybe non-VC would have been better. Myself and my co-founder are trying to raise via a syndicate of like-minded investors/angels in lieue of the "traditional" VC dance.
- hn_throwaway_99 2mo ago
  How is that going? I ask because just recently I read a post from someone I know who is getting out of the angel investing game. Her primary complaint is that in a couple early stage investments she made that then were successful enough to go on to a VC series round that early angel investors got shafted. That is, there was a strong desire from VCs to "clean up the cap table" and buy out early stage angels just as the business was starting to accelerate. There was some definite bitterness in her tone, feeling like she went out on a limb for some founders before the business was proven out, and then got dumped once the deeper pockets came along. I don't know the details of her situation, what else she could have done to protect her investments, or how common an experience that was, but there were many comments in agreement under her post, so I'm just curious if it's widespread.
- skeeter2020 2mo ago
  This is where PE came from originally, but then scaled to commercial bank / pension fund levels of investment. At least VC and Founders are aligned and honest about their goals (to the moon!); I've seen PE destroy more solid / non-rocketship businesses than VC

sandeepkd 2mo ago

My understanding so far is that as humans we get bounded by our emotions, morals, incentives and fears. On the other hand you are competing against capitalism that tries to use any possible means to make profits. It treads along every possible path of whats not completely illegal. What benefits it is that either the laws are not yet defined to cover those situations or they are hazy enough that there is an escape hatch. You name any big company and they have gone through the path of doing something that was illegal or questioned. Just like critical mass or escape velocity, if you are big enough you get through the hurdles or otherwise you get stuck and make a good topic in some ones paper like this.

pcurve 2mo ago

I'm guessing investors understand that there's high probability of the numbers being 'optimistic'.

m3047 2mo ago

I spent a few years hanging around the VC-adjacent scene in a major city, met quite a few of them (because I'm that way. elevator docent during events... priceless). There is publicly performed theater around VCs which is pretty consistent, taught in incubators, etc., etc. So that's how they manage set and setting (grooming) for the marks. Internally there are certain tells, that they must act a certain way. There are arbitrary character tests and whatnot which provoke a "culture" if you will, similarly to how computer languages and tech stacks form distinctive cultures if left unchecked; there could be self-selecting pressures (for these behaviors) as well. This is unsurprising to me as someone who analyzed voting patterns, and was asked numerous times variations on the question "is it something in the water or 'new car smell'?" (I don't have an answer for that question.) However VCs are much more stovepiped and cliquish concerning their actual selection process than people realize, I've heard it publicly described as "mafia like" by someone who I worked for and whose name many would recognize. I don't understand why this person, like so many others, invested so much effort... enough to get some serious butthurt IMO. It's a distraction, it effectively destroyed a different company I was working for.