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TechCrunch Minute: How HeadSpin’s founder fraudster almost got away with lying to investors
News that the former founder of HeadSpin is headed to prison for fraud was further evidence that the last boom led to a bit of fraud.
Fair enough, but the tale of Lachwani — the New York Times reports that Lachwani inflated “HeadSpin’s revenue nearly fourfold, making false claims about its customers and creating fake invoices to cover it up” — is not an isolated case. Recall that many very young startups are more ideas and potential than hard assets and historical cash flows, so what counts as diligence for a PE firm looking to buy, say, gas stations, is different than doing diligence on a Seed-stage startup. Mistakes were made, or, put another way, some founders saw the boom time as a period in which they could bend the rules.
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