A new study from Imperial College and Emlyon Business School has revealed that VC-backed tech founders are more likely to commit fraud, with researchers pointing to unrealistic growth expectations as a key driver. The study found that startups launched during overheated markets were 19% more prone to fraud, while those run by founder-controlled boards were twice as likely to engage in deceptive practices.

‘Surface façading’ involves lying about the company’s success, ‘reinforced façading’ creates false evidence, and ‘deep façading’ can even include fake demonstrations of capabilities. Investors are not blameless either; some continue to back founders previously accused of fraud, normalising these behaviours. The article suggests that the Securities and Exchange Commission should perform routine audits on startups hitting large investment thresholds.

The study also highlights that post-publication, VC-backed companies face more securities class-action lawsuits than private equity-backed ones within two years. This could be linked to public scrutiny being less intense for privately-held firms. The research calls for more focus on the balance between entrepreneurial and investor responsibilities in preventing fraud.