The end of simulation in Silicon Valley

“There’s more money involved, so it just changes the math,” said Alexander Dyck, a University of Toronto finance professor who specializes in corporate governance.

The Justice Department also urged prosecutors to “be bold” in pursuing more business fraud, including in private start-ups. So the fees for the founders of Frank, Ozy Media, Slync and HeadSpin and the expectations of more to come.

IRL, a messaging app that investors value at $1 billion, is being investigated by the Securities and Exchange Commission for allegedly misleading investors about the number of users it had, according to information from The Information. Rumby, an Ohio laundry delivery startup, allegedly made up a financial success story to secure funding, which its founder used to buy himself a $1.7million home, a lawsuit alleges by one of its investors.

News outlets have also reported unethical behavior at start-ups, including Olive, a $4 billion healthcare software start-up, and Nate, an e-commerce start-up claiming use artificial intelligence. A spokeswoman for Olive said the company has “disputed and denied” the reported allegations.

All of this creates an awkward moment for venture capitalists. When startup valuations soared, they were seen as visionary kingmakers. It was easy enough to convince the world and their fund investors – pension funds, university endowments and wealthy individuals – that they were responsible stewards of capital with the unique skills required to predict the future and find the next Steve Jobs. to build it. .

But as more start-up frauds come to light, these industry titans play a different role in lawsuits, bankruptcy filings and court testimony: the victim who was duped.

Alfred Lin, an investor at Sequoia Capital, a large Silicon Valley firm that invested $150 million in FTX, reflected on the cryptocurrency disaster at a January startup event. “It’s not that we made the investment, it’s the working relationship a year and a half after that I still haven’t seen it,” he said. “It’s difficult.”