I am assuming their line of thought was:
1 - make some sales
2 - spend income from step 1 on more ads to drive traffic to site
3 - go to 1
Kinda like they put themselves into their own recursive ad-pyramid-scheme or something.
Condolences for the customers who go burnt by this.
1. Raise some money.
2. Spend it on sales, even if their COS exceeds the margin on each scooter.
3. Rack up some "engagement" and "traction."
4. Raise another round.
That's basically what WeWork was doing: Spend so much on commissions that they were losing money acquiring tenants, but raise money based on various BS "metrics."
There is a solution of course - you need to raise enough money (or commit, in the case of Tile founder who should have had enough personal capital to make this work) to never be in a financial position that you couldn't simply return all your customers money in the event that the product or business didn't make sense. As long as you can gaurentee that you hold onto enough money for the returns, you are operating responsibly. If you take 100% of the money you get from sales and commit it, you cant take back ad spend or tooling/engineering spend. Is it fraudulent - I'm not sure. Is it irresponsible - most definitely.