How Investors Get Defrauded By Their Portfolio Companies

Once they have your cash, its hard to get it back
Don’t be the guy on the other side of the call
  • If all the engagement is high until the payment step, the previous engagement is suspicious.
  • In diligence, check the financial records to see if the company has spent money on fake likes, reviews etc.
  • Check ratios. If there are 1000 users or customers and 900 reviews, that’s either the best conversion rate in history, or it’s fake. Expect this ratio to be less than 5%.
  • Lots of great reviews before your investment, no new good reviews after the investment. Good organic reviews and activity should be consistent, persistent.
  • In analytics, check the network domains, service providers or any ISP data you can find. If it’s a high percentage of VPN services, the traffic is suspicious. Pro-tip, you can check IPs here.
  • Ask the entrepreneur if they paid for any fake reviews, followers etc. Clarify that by fake, they could have come from real people but the reviews were based on payment or other incentives, non-organic etc. Ask over email so you can get the answer in writing.
  • Put something in the investment contract about fake or inorganic reviews, likes etc. Make the entrepreneur initial this part :)



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Tobias Batton

Tobias Batton


Entrepreneurship | Publishing | Advertising | Games | CogSci | Information Theory | Cybernetics