Everyone always decries these as failures of venture capital. There is fraud in every industry. You cannot conceivably check everything and there is a level of trust required. Even if someone sends you raw data you are taking their word that it’s the true data. There can be deception at every level and smart people will be deceived by criminals. Where there is money there will always be crime so I am grateful to see our justice system working even if it takes many years.
That's facile and ignores that VC is supposed to be a vetting gatekeeper: the reason they keep a fraction of all the money going through their accounts is because they're supposedly vetting the investment opportunities and have money and access to knowledge as necessary to validate claims, etc. If they're not doing this, what is the value add the VC company is providing, other than being a skimmer on the money flows?
The reality is that as long as there is no liability for passing the buck (ie the scammer's and middemen's beloved caveat emptor), the system continues to encourage bad players.
My point is that no matter how much due diligence you perform, there is still a chance to be deceived. No amount of money could get you to 100% diligence and cover every edge case.
There is liability for knowingly passing the buck. VCs have been sued before.
> Even if someone sends you raw data you are taking their word that it’s the true data.
With hundreds of millions on the line, is it so much to ask that VC firms employ a couple statisticians to at least do a sanity check on the data? Fake data can often be identified as fake.
VCs differ wildly. A small VC will certainly not earn enough in fees to employ multiple dedicated statisticians. They will likely have a CFO/other analysts who can check the data but there's no guarantee they will catch cleverly manipulated data. Obviously this is a much later stage investment so different diligence is expected but there are many ways to deceive. Certainly some VCs saw red flags while others did not.
Hmm. This is kinda the opposite of what I'd expect.
I'd think a smaller VC would be more conservative with their risk, while a large one would be more liberal, in that the larger VC could withstand more failures to get the even bigger infrequent wins
That’s an interesting thought, I’m not really sure how different the risk tolerance is. If you’re allocating 5% of your fund into a deal I imagine you’d be similarly conservative at both levels as the dollar amount is different but the risk is still the same portion of your fund. If anything the smaller may be more liberal as the multiples are higher in early stage. Both are expected to have failures but a larger VC has more resources at their disposal; A small VC can’t do the same diligence that a large VC with an army of financial analysts can do.
