Startup groups are buzzing about GoMechanic’s founders’ statement that they committed “grave errors in judgment”, for “growth at all costs, particularly in regard to financial reporting”. Journalists calling this an admission of fraud, are being criticised for “kicking people when they’re down”, with defamation lawsuits being suggested against them. Others blame VCs for scapegoating, saying they’re responsible for the pressure to increase numbers for the next round of funding.
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Such reports are not new: we’ve all heard about bumping up GMCs and inflating expenses in e-commerce. Easy money makes people greedy, greed makes them do stupid things. VCs often ignore corporate governance issues. In finance, a hole you’ve dug is often filled with a deeper hole you dig, and eventually, due diligence reveals fraud. It’s important to course correct to ensure trust in investing, lest there be more regulation: including founders getting sued for fraud by investors. Sunlight is often a necessary disinfectant.
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