- Opportunity. There's likely more opportunity for a startup executive to commit fraud, as accounting, sales and operating systems are typically not in place or if in place, not robust enough at startups to prevent fraud. Venture Capital funds have fewer opportunities for fraud, as there are fewer moving pieces. A VC fund pays the GP management fee and carry, pays for certain fund and transaction expenses (legal, accounting and insurance are typically the largest fees), makes capital calls and distributions, and makes investments - and that's pretty much it . A startup has many more moving pieces.
- Culture. Startups in many instances are like the Wild West - immense opportunity, gun-slinging attitude, and young entrepreneurs who typically don't have a lot of management experience. Compare this to a venture capital fund, which typically has an in-house CFO and back-office team that is experienced and establishes a more structured, professional culture than many startups
- .Accountability. Most startups fail. If a startup executive realizes that the company isn't going to make it, there may be a temptation to maximize personal gain over doing the right thing (shutting the company and returning money to investors). If a company fails, the winding-up process is typically very quiet and private (known as an assignment of the benefit of creditors).
"Fraud by Venture Capital Fund Managers" can be found at:
The Fortune article "The Ugly Unethical Side of Silicon Valley" can be found at (copy and paste in browser):