A new report from Imperial College and Emlyon Business School has identified how VC-backed founders commit fraud, with researchers pointing to investor expectations as a key driver. A database of tech founders and companies facing securities fraud prosecutions between 2000 and 2023 was compiled, highlighting cases like Charlie Javice and Do Kwon.

Researchers found that while fraud is rare overall, VC-backed startups are more likely to face charges, especially during overheated markets with weak oversight. Startups launched in such conditions are 19% more likely to commit fraud. This can escalate through "façading"—surface lies about success, reinforced by fake evidence, and ultimately deep deception about technology capabilities.

Investors, by setting unrealistic high-growth expectations, can "co-create fraud." The report also notes that alleged fraud is often not career-ending in Silicon Valley, with little evidence of past misconduct preventing founders from raising new funding. Startups with founder-controlled boards are twice as likely to commit fraud.

Researchers suggest the SEC should investigate startups after they reach a significant investment threshold, and investors should be held more accountable for corporate governance failures. The current emphasis on founders as sole perpetrators is also questioned, advocating for more research into entrepreneur-investor dynamics.