It turns out the venture capital industry doesn’t just merely fund junky AI startups — it also systematically breeds the conditions for fraud.
A new joint study from researchers at the UK’s Imperial College and France’s Emlyon Business School analyzed 12 companies involved in 27 court cases related to civil or criminal cases related to securities fraud. The cases totaled around $688 million in financial losses, and resulted in 73 years of cumulative prison sentences.
After analyzing the individual cases, the researchers identified a persistent pattern of “façading,” in which startup entrepreneurs hide their flailing businesses from scrutiny through an assorted mix of fraudulent behavior.
The research, first reported by TechCrunch, identified three various types of façading: surface, reinforced, and deep façading, which are “contingent on the severity of the gap that entrepreneurs face between audiences’ performance expectations and ventures’ performance reality,” the paper explains.
