Jason M. Lemkin and Rory discuss fraud in venture capital, arguing that founders who deliberately fabricate metrics or revenues should face jail time. They agree ethical standards are declining and that VCs' inadequate diligence enables dishonesty.
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 years 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, 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 it's a net 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 and 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 it's not, there's not enough time to earn it. And, and in investing, sometimes there isn't enough time to earn it. You can't get to know someone for four months anymore, even four weeks. You might have four 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, 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. 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 that's 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 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 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 to people before we manage 50 billion of other people's money. So the incidents may fall on the guilty but I'm not sure the moral blame should be allocated the same way.
