Beta launch · Beta users

A startup I began advising admits they faked some beta results. What should I do?

Anonymous

Last updated on October 8th, 2017

Before anyone rushes to judgement, please hear me out. Any comments like 'RUN AWAY' aren't necessary, I'm sticking by these guys.


I'm new to startup advising, but I'm very familiar with the niche space this startup is operating in. The founders have bootstrapped and their beta test is limited e.g. no one in their right minds would invest because of the real or fake beta results. The concept, the team, the IP, the execution plan and everything else is pristine.


I believe my contacts - strategics - are fully capable of investing a Series A sized check to the startup. My concern is what happens if and when the investor asks for a financial statement. What is a valid excuse to use to explain why the statement can't be provided, one that won't raise eyebrows?

Daniel Turner Interaction Designer, Xerox PARC

October 8th, 2017

May I ask why you're sticking by them? You need the money (I find that a weak reason, but you might have circumstances)? You like these "guys" (I guess you mean they're all male)? Note that you're not doing them a favor by remaining silent. Do you believe that they could have good results without faking it (which speaks to their judgment and trustworthiness)?


Sunlight is the best disinfectant. Being complicit and remaining silent not only makes them think it's okay to cheat (and not just cheat the results, but cheat the investors, the users, the competitors). As you yourself note, that they did this puts the whole company itself in danger; if that's what gets them to do the right thing, that's a sad comment, but may be a corrective.


Why do you think they faked things? Intentionally? Because they know how to run tests (jesus, hire someone competent who won't fold under pressure for the "right" results)? Because they didn't get what they wanted and didn't have the competence or experience to schedule in testing and iteration to, you know, correct their assumptions that didn't work and make the product better?


(Aside: now that I get to that point, I think that speaks volumes about these boys' competence: if they think that they need to run a test only because investors, but never think that they may learn something and have to revise what doesn't work about their first thought/vision, they're already on the road to crashing and burning.)


Sorry if this comes across as harsh. But think deeply about what this indicates about them, and how you will feel about yourself as a competent professional if you remain complicit. Is this something you'd be proud to tell people you did?

Daniel Turner Interaction Designer, Xerox PARC

October 8th, 2017

To expand upon something I skipped a bit over. You say "The concept, the team, the IP, the execution plan and everything else is pristine."


No. The team is tainted by cheating. The execution plan was obviously flawed at best, clueless most likely, and intentionally fraudulent at worst. That goes back to the problem of either not knowing how to test, faking results, and not having an execution plan that bakes in "well, we thought users/customers needed X but turns out we were wrong" iteration. Remember that Eric Ries's model isn't "build as soon as you have an idea", it's "try to break your idea and then build if you can't and then test and then iterated based on what you learn (which may not be what you want to hear)".

John Lombard Canadian entrepreneur in China since 1993

October 8th, 2017

Did they just entirely fake the beta results? Or they got real results, and then faked results because the real ones weren't good enough?


If it is the first scenario, then get valid beta results. If it is the second, then use the results they got.


People make mistakes...and most investors understand and appreciate that. I'd come clean about it (although perhaps present the false beta results as being a result of 'mistakes' made in their procedure, rather than deliberate fraud), and present the investors with the actual info.


As to not being able to provide a financial statement...quite frankly, if they're not at the point of being able to provide a valid financial statement, they are not at the point of being able to ask for investment, REGARDLESS of the reasons for that. Slow down, do your homework, get all your ducks lined up...and go for investors when you DO have valid info to give to them.

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 8th, 2017

Run, do not walk, to the nearest exit. Integrity is a vital element in all business relationships. Life is too short to represent those of questionable character.

Jude Burger Transition Change Manager at Thales Australia

October 8th, 2017

The team is clearly not “pristine”. Their ethics are now known. You seem quick to excuse their behaviour and slow to unpack the how and why of it. If you want to be a good advisor, be scrupulous in understanding what happened. Don’t give these people such an easy pass, the behaviour itself is not OK: it doesn’t matter that the material impact was low. In future times of pressure, without good management, people like this could easily cross the line again.

Paul Benedetto Many time entrepreneur, advisor and financial guy

October 8th, 2017

Adding to the chorus - it may be an incredibly hard decision for you to make, but the best one is disassociate yourself from this relationship, before it turns further negative - and it will. Little lies now can turn into much bigger ones when there is more at stake and the pressures build. Their lack of ethics at this early stage is a huge warning signal. That fact that your brought this issue up tells me that you have enough doubt. Trust your gut.

Darian Hickman

October 8th, 2017

To answer the direct question: The legit explanation is at a minimum, non-accusatory truth: the research on the beta is botched. Fortunately you caught it in time and you and team are working diligently on getting the right analytics in place.


The second implied question: How do I avoid funding the next Theranos, avoid burning friendships in the investment community, and also misallocating capital? The best way is to fix the research/analytics.

Marvin Schuldiner Problem Solver at Sanns, LLC

October 8th, 2017

Faking test results that are used to entice investments is called FRAUD. There are criminal and civil ramifications to fraud. If investments would be made with or without the faked results, why fake it at all? What fool would invest in a company with no financials?


When things go south on this investment, you will be dragged in as a party to the fraud. If I were you, advise the founders get out ahead of this faked beta testing and make things right. If they are unwilling to do so, loudly disavow yourself from these founders lest you be dragged down with them when it inevitably happens.

MR sandoukh Risk Taker, challenge people, focus on growth

October 8th, 2017

good day to you,

i would suggest to take step deep in to fix it. Find another company or person to review and consult all the procedures to find where is issue. Believe tap on the shoulder will not work with them. You need to be aggressive.

Rob Roberts Entrepreneur / Product Manager / Professor

October 8th, 2017

I think your priorities are mixed up. You risk your credibility and reputation by standing behind these guys and representing them to the investor community. The fact that they faked beta results is a huge red flag. If they are willing to do that at this stage, what will happen if an investor writes a check for $5m? Someone who can't be trusted with beta test results cannot be trusted with investor cash.


With these guys, the investors should absolutely ask for a financial statement and should crawl through it with a magnifying glass.