In a heated discussion, Jason M. Lemkin argues that founders who commit fraud should face prison sentences, asserting that regular incarcerations would create a chilling effect and restore trust in the venture ecosystem, which he sees eroding due to rampant dishonesty and greed. Rory counters by placing current fraud in a historical context, noting that peaks of dishonesty align with periods of high greed, but agrees that egregious lies merit severe punishment, potentially up to prison. Speaker D points out that venture capitalists’ eagerness to close deals quickly, often without thorough due diligence, fuels fraud by rewarding greed. Speaker C emphasizes that sophisticated investors and fund managers have a duty of care to scrutinize claims, suggesting audits and slower decision‑making to protect the system. The conversation underscores a perceived decline in founder ethical standards, the systemic risk of trust breakdown, and the need for stronger consequences and investor responsibility to curb the rising tide of fraud in venture‑backed startups.
Chapters
I think the best control today would be if more founders that committed fraud went to jail. I just think if every month someone went to jail that completely lied— I know Rory disagrees— completely lied in a round, complete— sent financials where they aggregated all their year's revenue in one month, where they pretended unpaid pilots were pilots. If a couple of these went to jail every month, I think it would have the proper chilling effect and mitigate the rampant fraud we're seeing. Today. I just think it would be helpful for the ecosystem if that were penalized. And I know Rory thinks it's a cost of venture, but I think it's reaching an all-time high. And in the end, it's a net negative if trust breaks down in investing because there's just so much— we can laugh about it when so much money is being made, but if trust leaves the system, it's just so much harder. There's so much trust in this system. There's so much trust. And there's not enough time to earn it. In investing. Sometimes there isn't enough time to earn it. You can't get to know someone for 4 months anymore, even 4 weeks. You might have 4 minutes. So, I wish a few more people went to jail because there's no consequences today. There's no consequences to standing up at a top accelerator and saying, "We have millions of revenue," and the next week, the revenue isn't there. There's just no consequence. And maybe that's funny to some people. I don't think it's funny. I think it's like Jeff, like founders used to— every founder, almost every founder used to have this ethical standard a few years back that I think has dissipated in today's world. And it's just rampant greed. And I like the greed because it'll make us money, but there's too much of it.
I think dishonesty ebbs and flows with greed. And I think you tend to see peak dishonesty at a time of peak greed. So you see more of it now. But I don't think human beings have changed. I don't think we're more moral than people 30 years younger than us. I think the truth is, you know, you look at 1929, you look at the, you know, the boom in the '80s, when there's lots of money at stake, you tend to just see more fraud. Right. And no surprise happening right now. I do think people who absolutely lie should suffer severe consequences up to and including prison.
Like, I actually think a little bit like, like if VCs are like so eager to get a deal done because they're like, I don't have time to even check any of this stuff, then it does feel like, like that their greed in that scenario gets rewarded with some amount of fraud.
The commission of the crime is on the 22-year-old who lies and they pay the consequence. But there was a little bit of me saying the 40-year-old running a lot of money who's sophisticated, who's running a big firm, they kind of owe the system the duty of care to check some of this shit and not be carried away. You know, it would be better if the people who are paid for their judgment exercise that judgment and a few times said, slow down here, maybe we should have an audit, people.
Before we manage, you know, $50 billion of other people's money.
So I, I, I'm— the incidence may fall on the guilty, but I'm not sure the moral blame should be allocated the same way.
