How Investors Get Defrauded By Their Portfolio Companies

Tobias Batton
5 min readFeb 26, 2020


If you are an early stage investor, you’ve heard it before:

“Users absolutely love our product. Just look at all of our installs, reviews, likes and followers. We just need the cash to finish x,y,z so we can scale.”

Entrepreneurs often see red. They can be afflicted with a sort of tunnel vision that keeps them from acknowledging that people (customers) may just not be interested in their product. The source of this affliction is sometimes the fiduciary duty owed to previous investors. Usually, though, it comes from a self delusion that develops partially as a result of the Ayn Rand-esque start-up culture myth that we can all be disruptive on a global scale with a good idea and a bit of elbow grease.

Once they have your cash, its hard to get it back

Investors have hard jobs. Most are raising money into their funds, while investing it on the other side. The 2/20 model can be rough in the early days when the 20 part hasn’t kicked in yet. You’re understaffed, its meeting after meeting, flight after flight. After awhile, entrepreneurs and their projects seem less exciting and they all sound the same. Its a sort of inattentional blindness that you may have experienced staring at a puzzle or driving too long. In this state, investors become vulnerable to the herd mentality, buzz words and hype-machines.

Fake reviews on the Appstore cause all sorts of problems

An entrepreneur seeing red has a desperate need to overcome that inattentional blindness. It’s cheap to create the illusion of hype. AppSally (for example, there are plenty of others) can help an entrepreneur create the illusion of extreme popularity for less than $1000. The group provides likes, reviews, comments, ratings etc for just about any social media site or digital store front. While the site is quick to make the claim that it leverages all real people and not bots, this misses the point. The interest is inauthentic. The people that engaged did so because they were paid to, not because they care. If an entrepreneur uses this service, or services like it, then points to the results as “social proof” or “proof of interest” they are being disingenuous (lying to you, possibly themselves). If the entrepreneur is creating this illusion to raise money, it might be wire fraud which is a felony punishable by up to 20 years in prison.

Don’t be the guy on the other side of the call

As an investor, its important to understand that anything can be easily and cheaply faked. The only real proof we can count on is revenue. People don’t fake pay. However, if secondary markets are involved as they often are for virtual / digital goods, revenue may be a result of money laundering or other nastiness.

Some tips:

  • 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 :)

It’s worth noting AppSally and similar companies aren’t doing anything wrong. The point here is honesty. If an entrepreneur has purchased this sort of activity, they should make an accurate representation. Then, all parties can see the truth and decide together. Ultimately, any “traction” you see has the possibility of being fake, inorganic, low quality or not likely to scale for a myriad of reasons. Take note and be diligent. I’ve helped a number of investors with diligence over the years. If you are looking for assistance, feel free to reach out on linkedin.

Author’s Ethos

Tobias Batton is a 15 year ad veteran and a product / marketing executive that has founded 3 companies and sold 2. Most recently, Batton was responsible for over 100 million app installs delivered to top mobile game publishers with his Signal Zero publishing and loyalty platform. In 2012, He was hired by the Emerge Digital Group to build a mobile division for the organization which helped the Emerge be named America’s 8th fastest growing company in the USA (Inc. 500). Prior to that Batton was tapped by Nova Spivack to build his real time event tracking system and temporal search engine Live Matrix, which was adopted by Facebook to build Facebook Live.

Batton was also a founding team member of IGN’s Indie Open House which helped indy game developers create and release their games for desktop and console. Batton also founded Resistor where a variety of popular web and mobile games were published including the widely played Clan Wars and the cultural phenomenon iGirl. Batton’s first company which helped independent filmmakers publish their films digitally was launched in 2006 and acquired in 2008.

He has been responsible for millions of R&D dollars building a loss prevention platform for digital advertising while managing millions more in marketing budgets. As a result, over 100MM installs were driven to top mobile game publishers while simultaneously preventing hundreds of millions of dollars worth of loss for ad technology companies that represent billions in annual market share. He has led the development of a mobile SSP, built a mobile promotional platform with 60MM+ users and was a part of the launch of thousands of games and apps. Because of his work promoting games, he was featured on Fox Business Risk and Reward. He has guest lectured doctoral candidates from Stanford, MIT and INSEAD on the above topics. He is intimately familiar with mobile devices, information theory, Shannon entropy, device fingerprinting and a variety of other related concepts.

Batton has designed and published several best selling mobile and social games. This led to his published game design framework “Variable Dopamine- Wavelength Mapping Theory” — a system based on Dopamine spikes in the brain, applied directly to an overlap of both Maslow’s pyramid and Pavlov’s trigger-based framework — has been featured at numerous conferences and articles, including Forbes. He has been profiled by Forbes, Fox Business Network, the New York Times, WIRED, IGN, Cnet and VentureBeat.



Tobias Batton

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