How did he not find the baggy, with his hand in my shoe?
I believe there is a lot of fraud in high tech startups, 95 percent of which fail. With only a five percent chance of surviving, startups face a gauntlet of risks as described in this quote from uber-VC John Doerr in my show Nerds 2.01: A Brief History of the Internet:
“There are four categories of risk to look for in every project:
1) “People risk: How the team will work together. Because inevitably one of the founders does not work out and drops out.”
2) “Market risk: This is an incredibly expensive risk to remove. It is about whether the dogs will eat the dog food. Is there a market for this product? You do not want to be wrong about market risk.”
3) “Technical risk: This risk we are quite willing to take on. Whether or not we can make a pen computer that works, be the first to commercialize a web browser, or split the atom if you will. That technical risk is one we are comfortable trying to eliminate or take on.”
4) “Financial risk: If you have all of the preceding three risks right (people, market, and technical), can you then get the capital that you need to grow the business? Typically you can. There is plenty of capital to finance rapidly growing new technologies that are addressing large markets.”
Of course Doerr completely forgot to include fraud risk — that investors would simply have their money stolen.
Tech fraud happens all the time and those who are fooled include the most sophisticated investors (big shot VCs are not at all immune). (…)
Several years ago I lost what was for me a substantial amount of money investing in a financial patent startup. It looked great on paper, the only problem being that the paper was forged, simply made up. Nothing was as it seemed. The company’s books literally didn’t exist. So I sued, spending a lot more money, only to have the founders declare bankruptcy and walk away.
