Guiding a Venture-Backed Startup to a Felony
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Took a bit of searching, but stuff like the Trailsman and Longarm series, some of which may still be alive - and with close to 400 books in the series.
I have to agree with jessaustin - this was a con. The fact that they were able to leverage a securities connection into felony charges does not make it venture capital.
Edit: see http://www.readersadvice.com/readadv/000214.html for a list of some series and books in them.
It actually reminds me of the people who take the opinion that in the magical world of the DAO no one can be liable for anything because by definition if an action occurred, then it is legal because it was contractually agreed to.
It's an important lesson to learn that corporate veils can be pierced and contracts can be voided (i.e. unfair; deceptive; fraud in the inducment; illegal; etc...).
Which also means that trying to take lessons from them seems kinda silly. If you're not trying to run a con, you don't need a web list to tell you how to not look like you're running a con.
The only one to take lessons from here is the investor. If you're new to investing, don't invest money in a random startup run by strangers based on a slick pitch. Do hire some people who know what they're talking about to do some due diligence. If you're putting a quarter mil at risk, it's worth at least spending a few grand to make sure they're legit.
> One couldn't reasonably expect a single author who wrote five westerns all by herself to net $250k for her efforts.
Why not, that's too low for any author? I would have thought they could find someone somewhere who'd agree to make 5 mediocre, somewhat short novels for 150k total, maybe someone just starting out.
Wouldn't that have at least been a real effort and protected them from being charged with fraud? That'd leave them with 80k in profit. They'd still have to get around the part where they agree money won't be used for their salaries, but they'd at least have fulfilled the letter of the agreement. And 80k for a few weeks of work is pretty good, imo.
This is very close to the standard for a defense to criminal fraud and grand theft (when there is a contract). Basically if you can show even minimal effort was made to comply with the contract, usually that will be a strong defense to fraud and/or grand theft.
Off the top of my head there is one case where a guy was contracted to paint a house, he bought the paint and showed up day one but never did any work. He was convicted of theft but on appeal it was over turned because since he made some effort it showed he didn't have intent to defraud when he entered the contract (obviously that is debatable). However, that is just the criminal side he would still clearly be liable in the civil context for at least breach of contract.
I'm sure you can do cheaper.
The thing is, you can churn out books like that in less than a month [1] if you follow a formula and write fast, and given there are plenty of people in low income countries that can write perfectly fine English, if you don't care much about quality you can certainly get hold of a bunch of mediocre westerns without paying a lot.
[1] E.g. Louis Masterson / Kjell Hallbing is an example. When he started the Morgan Kane series, he churned out a book a month. The initial series was of 83 books, and he's written more than a 100 westerns overall.
It feels like a bit of a gamble to write a series of books and throw a huge marketing budget at them. That's what publishers have been doing, and it doesn't work for most of their books.
Average earnings for published authors in UK is £11k pa.
https://www.theguardian.com/books/2015/apr/20/earnings-autho...
> The top 10% of professional authors, those who make £60,000 or more a year from their writing, earned 58% of all the money made by professional authors in 2013, and the top 5%, those making more than £100,000, earned 42.3% of that money. The top 1%, who make mean average earnings of more than £450,000, take 22.7% of all earnings, said the Authors’ Licensing & Collecting Society, which commissioned the UK-based survey.
> The picture for lower-earning writers was much bleaker. The bottom 50% of authors were those who earned less than £10,500 in 2013, and accounted for just 7% of the amount earned by all writers put together. And 17% of all writers did not earn anything at all during 2013, said the ALCS, adding that 98% of those authors had published a work every year from 2010 to 2013.
I dunno, does this make it sound like the scam / system described in the submission is worth a punt?
Promoting book sales via a specialist niche community site isn't a bad idea.
In fact niche marketing was more or less how 50 Shades got started. It was a crappy novel marketed brilliantly by a professional marketer, who went from persuading a small community to praise the book, to leveraging that praise to get interest from other online communities, to leveraging that interest into a mainstream publishing contract with formal marketing support.
Of course, for that to work you need a marketable demo.
Outdoorsmen who read erotic fiction in between heroic fishing exploits are possibly not the world's biggest niche book market.
How much money would they even have had to spend on marketing the books, given they would have their own web portal?
> I dunno, does this make it sound like the scam / system described in the submission is worth a punt?
Maybe not if you're trying to make a successful business. But if you're trying to do the bare minimum to quickly score about 80k usd while still protecting yourself from fraud/felony charges, wouldn't this be good news? It sounds like you could easily find an author who'd be happy with 10k or even 15k per year.
So what? Isn't all investment "a bit of a gamble"? If it was self-evident that money would be made, it wouldn't be a good investment opportunity. Some degree of risk is inherent.
To be clear, I'm not defending the fraud described in the article, only the concept that someone may rationally wish to invest behind a self-published author.
They were charged with securities fraud, not plain old every day fraud. My guess would be that just their "conservative scenario" of "you get all your money back" would be enough to put them into securities fraud territory. Having read a fair number of securities documents, that claim really leapt off the page at me. Usually offering documents have an extensive list of risks and stay far far away from promising your money back.
That said, I'm not a lawyer, and this was a prosecution under Colorado state securities laws (I'm much more familiar with federal). I would be interested in an expert answer to that question from someone who's familiar with the case law and the typical approach taken by prosecutors in similar cases.
This is an interesting piece of advice. I never thought to plan the negative scenarios when doing high-level planning. You always discuss possible risks and keep them at the back of your mind but adding a failure scenario to your plans among low, medium, high outcome scenarios is a really good idea.
You don't hear much about risk management/planning for startups. If you're not monitoring your risks along with your positive KPI's (or factoring them in your KPI analysis) it's easy to gloss over them or delude yourself that they don't exist.
Although, otherwise I question the value of taking much lessons out of this 'startup' failure. It's not very analogous to anything like the standard HN web startup. Just some outsider non-techies who wanted to make a 'web portal' and wasted a bunch of money frivolously (ie: 100k went to the author for licensing upfront). Even ignoring their lack of technical industry experience, their business plan heavily centered around building a community with a target market they didn't already have any traction or influence in - which is always the hardest part in any community-centric product. The tech is (usually) the easy part.
I've helped some new founder types develop business plans and pitch decks over the years, and they all seem to be very hesitant to have this kind of (let me call it "adult") conversation with people, but I personally find a slick/happy/always-sunny-here pitch to be a little too used-car-salesman for my tastes. It certainly wouldn't be out-of-bounds to have one of the five projections be "total loss", but it doesn't add much information to the discussion, so while I mention it in passing, I don't include that in chart form. But, it seems to me that if honesty turns off investors, they probably aren't the kind of people you want on your board anyway... Nothing worse than a noob investor asking all the wrong questions all the time and harshing your zen when you've got a company to build.
How was an outcome of "we burned all of the money and didn't deliver a single thing" not in the final draft of at least three different contracts? I spent a year searching for venture funding and it was painful. There was no oversight, or staggered milestone based deliveries? Someone just handed over $250,000? In my dreams.
> Keep personal expenses out of your company books.
Is likely the most important advice in this piece. If you only take the compensation you agree with your investors/board to take, and you never pass unrelated expenses back to your entity, you will at least appear to be acting morally.
The second you start commingling funds, is the second you enter a period of extreme risk. Never commingle investor funds with personal funds and avoid spending on things that you 'justify' as a business expense if they benefit you personally in anyway.
I have a feeling we are about to read about more cases like this one. America is in full startup fever right now and people will act immorally when they realize that success is out of their grasp.
And I tend to agree with the general sentiment of other comments here, it seems that given there seemingly was no real intent to create a real company from the funds invested, the title of the article could just as easily be "How Not to Run a Fake Startup Investment Scam".
Unless you bought those venture-backed rose-tinted glasses for those passionate about whatever the next fad is.
Open your eyes, people... Oh and this just reeks of con.
"Class three felonies, such as vehicular homicide while under the influence, are punishable by four to 12 years behind bars and five years of parole."
[1] http://www.mbslawco.com/blogs/2015/october/understanding-man...