Anatomy of a Scam
jacquesmattheij.com
jacquesmattheij.com
The central premise of the pitch was to repeadily go over how Bitcoin market price had changed from 2009 to whenever it was (probably around $3000 at the time), and then suggest that their new asset would experience even greater increases even faster because <jargon>. Paraphrasing: "So if I invest $1m today, in seven years...?" "Your investment be worth 100 billion! maybe more, but I can't promise that. 100,000x growth is the _minimum_ but the maximum is anyone's guess". They looped over and over again, I think with the prospective investor making extra sure he understood before writing the guy he was talking to off as a scammer.
At that point I stopped worrying about the particular pitchee was going to get scammed, it was too absurd. (I'm sure my numbers aren't exactly right, for one they had a bunch of excess precision in reality, presumably based on the day's Bitcoin price, but whatever it was was totally absurd).
> or even a VC that is not tech savvy
Honestly, I think being "tech savvy" is a liability. Someone who doesn't think they're tech savvy knows they don't know. It takes a certain level of expertise to talk yourself into something extremely dumb. They might not fall for this particular pitch deck (or the one I overheard), but there are scams for every skill level. And the more confident you are in your understanding, the larger the "investment" you will being willing to make.
That's a brilliant line. I'm sure I'll be borrowing it :-)
What you just said, but in visual form:
https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect#...
This leads to both/either FOMO ("I don't want to be considered dumb because I didn't invest in X") or self-optimism/egotistical ("I'm smart because I found the Next Big Thing"). These two factors explain a lot of the cases where supposedly smart people talk themselves into stupid decisions.
Or as another commenter posted, these people are not really "smart" or are smart but not "wise", because a wise person would recognize such situations and be on the other side of the stupidity mountain into enlightenment land.
Blockchain's probably the prime example of that. Understand a potential real world use case and you can probably identify the extent to which mutability of records loses value, and pay someone to audit the code if the real problem is that centralisation is impractical and stakeholders can benefit from manipulating the records without having any incentive to modify the physical product. If your fundamental understanding of a business model convinces you the real business problem is mutability of records, you can hire someone skilled to evaluate whether the codebase is likely to fix that. More difficult if your starting point is that the code and team certainly deliver on promises and the only problem that needs due diligence is everything else about why people would ever use it.
On the other hand, outside the VC world there are a lot of people in corporates who broadly understand use cases but don't have an in-depth knowledge of the tech whose job depends on saying yes to enough innovation initiatives
Both inside and outside the VC world, I think.
You make an extremely good point about use cases: you don't have to be an expert on the tech to avoid scams as long as you're an expert on the problem it's being used for. If you can say "but we have a trusted source and we want to fix mistakes in old records, wouldn't a database be better?", you're past 90% of blockchain puffery. But if you have to say "what if there's a trusted source?", you can still get snowed by talk about all the hypothetical ways that could fail to apply.
If you're picking tech someone else will use, or investing in products you think the market will value, you can't rely on knowing the problem in detail. It's like the difference between a beta tester saying "can I buy this?" and saying "I'll bet tons of people will buy this". The first tells you what they think about the product, the second other just tells you what they think about other people.
But most people aren't at that level of expertise, and no one is that good at everything. If you're an expert at one thing, you're bound to be merely informed on a bunch of topics at the periphery of that thing. And "tech savvy" more or less means "informed by not an expert", so I think you're exactly right - that, more than cluelessness, is where danger lies. As we gain knowledge, we rely more on our own expertise than on consensus wisdom. And that's often right for spotting bad ideas, but it doesn't work for spotting scams. If someone is trying to hide the flaws where your knowledge is lacking, learning twice as much gives you far less than twice the resilience.
I definitely can't identify the next bit thing in gene therapy or concrete additives, so there's no point in even trying to pitch me. I'd turn down the real deal and not regret it later, because I have no chance of getting it right. But I first heard about Bitcoin in 2011, so it's not quite unimaginable that I'll get a shot at the next one also. And a "not quite unimaginable" shot at riches is pretty much what scammers live off of.
Yes, the person I was talking about wouldn't be successful against a more sophisticated target. But there is no amount of technical sophistication that makes you immune against the right scam because even the most technically adept has finite time to consider things, and they're all still human.
Your excellent point about "learning twice as much gives you far less than twice the resilience" means that essentially no one can be completely immune, once you factor in time.
So I think only the wisdom to really appreciate your vulnerability is universally protective, even if you are an honest to god super-guru.
Case in point, witness the fact that one of the early Bitcoin developers publicly endorsed and obvious fraudster claiming to have invented Bitcoin but who can't even get basically technical points about Bitcoin right, much less some new and unfamiliar system. In some alternative universe where that hadn't happened his name might have easily found its way onto your list.
I agree with you that the kind of top flight technical background needed to shunt off even fairly unsophisticated scammers is very rare.
> But I first heard about Bitcoin in 2011, so it's not quite unimaginable that I'll get a shot at the next one also.
Indeed, but there you wouldn't have needed to expend much-- and not anything that could have directly made a scammer money.
I've always thought it was weird to see people who in 2011 said Bitcoin was a scam and didn't mine any though they could have at little cost... years later turn around and dump their life savings into super sketchy premined altcoins. I think they learned the wrong lesson. Their skepticism wasn't a problem.
And yeah, now that I look at the list of people who've claimed to be Satoshi, it's pretty alarming to see how many have gotten at least one major Bitcoin figure to vouch for them. Even Craig Wright, who claimed he'd move the genesis block and then simply didn't - I guess being a Bitcoin guru isn't enough to make sure you actually verify somebody's published transactions.
I suspect that you need several times the technical sophistication of a scammer to catch them out, and if they know who they're pitching to the bar might rise unattainably high. The fact that it normally doesn't, that even I know enough to catch out scammers, has less to do with protective expertise and more to do with not being in their intended demographic of marks. Which ties into your last point: I don't really regret not buying into Bitcoin given what I knew, but my takeaway is "don't be afraid to throw $100 at a crazy idea", not "try to search out hidden gems", and so I'm not likely to be a high-dollar target for later scams.
So the other profiles you found could just be sloppy webmasters who didn't remove the default Team pages of their Wordpress theme.
[0] https://www.radiustheme.com/demo/wordpress/themes/financeco/...
You better have sales, I say. They do they say. $1 Billion worth!
What are your margins? 30% they say!
Uh, so why don't you go to a bank? Well, you know banks charge an arm and a leg.
At this point, I don't believe anything but I ask for the contracts or the POs from the companies (GE! Honeywell!) thinking I would verify them later.
I get identical looking POs, adding up to a few hundred thousand, all from unheard of companies.
You'd think with those margins and sales they'd have 15 million just lying around ... for pizza parties or something.
You see Honeywell had written a $100mm PO to a new company without the factory to produce the product.
That would be pretty brave of Honeywell there ... I guess it wouldn't technically cost them anything to have a PO where they maybe had to deliver a product first but big company like that looking at someone without a factory would more likely get a "lol k thanks bye" than a PO ;)
Seems unlikely they'd bother to even plan to sell a product that isn't a thing yet tied to some nobody without means to produce it.
"This sounds interesting, but I'm wondering why you're looking for a fifth employee who's only going to be around for a few months instead of someone committed?" "We don't want to shorten our runway with salaried hires too fast, but we're expecting to close funding within the next year, so we can bring back the summer hires full-time after graduation and you'll already be ramped up."
"So you have some runway now, and you're negotiating more funding - you've raised angel funds and are working out Series A?" "Well, we're still at 'friends and family' and we haven't pitched VCs yet, we don't want to dilute the company too quickly. But we're starting to sound out investors and we've had a lot of interest!"
"So if you're that early on, are you looking at hiring purely in stock? How will that work with the temporary role?" "Obviously we can't give people shares just for a summer of work, and we don't want to plan too far into the future since we don't know our timeline yet. But once we close this funding we'll of course be making very competitive salary hires with stock grants."
"So it's contract work with the potential to become an early startup employee later? I don't mean to obsess about salary, but I see it's in New York City and I'm going to need to pay rent." "Well it's not contract work as such, we want people more dedicated to our mission than that. But I guess I could talk to the other founders about putting together some sort of housing stipend."
"So, it's an unpaid internship in NYC, and you're not willing to put anything beyond that in writing?" "..."
Just for fun, I kept talking for long enough to find out the top-secret details of what the app actually did, which took some doing. It was going to assess your activity level and "holistic well-being" to present a "supportive audiovisual experience". They'd stapled a 2000-era WMP music visualizer to a mood ring.
I’m glad you were aware enough to ask the right questions. However, I will add that whatever poor judgements people make there is just this line that is crossed with actual falsehoods that is hard to undo.
Whatever mistakes these would be employers made, at least they told the truth.
Perhaps this story fits better under the other thread here of legitimate arrangements with scam-like effects on their partners. The pitch I got reminded me more of a doomed restaurant than an MLM: the founders seemed sincere about the merits of their idea at least (they demanded an [now-expired] NDA, even!), and I really don't know if their optimism about the company's prospects and the job's quality was faked. They knew something was wrong well enough to bury the problems, but an outright work-for-free scam would probably have been pitched more smoothly, maybe as a "take-home interview assignment". As is, they might well have followed through on the promises if they had somehow gotten their millions. They didn't exactly have my best interests at heart, but like many people overselling failing projects, I think they were aiming at a wildly unlikely success rather than pushing a strictly negative deal.
They put together startups, have a couple of good months, but then go back to regular programming of funneling VC money into their own account, while starving out their startup.
Then when the startup goes under, they disappear, only to resurface a year or two later somewhere else. Probably with a new name or alias.
They almost never go for the real big fish / tens of millions, or even millions - but just enough to live a cushy and flashy lifestyle. Nice leased penthouse, cars, etc.
In the movie Goodfellas they articulate it well - obtain the goods on credit, move it in front door and sell it at a discount out the back. It doesn't matter. It's all profit! Then they even light it on fire and collect insurance money.
They are especially rampant in construction, where it's easy to get bank loans, by showing contracts and won bids (which are won by aggressively undercutting competition), and inventories can be flipped with ease.
We do have laws that essentially gets them banned from owning companies, if they pull that off too many times - but they easily circumvent that by just persuading friends and family to start companies on their behalf. It's a scummy business.
With the slide saying: "The lack of direct integration with operating companies and associated funding sources creates volatility and eventually subjects other coins or tokens to disintermediation and extinction."
(Or, translated "other tokens die because of $reasons")
I think the point of the graph is to just reinforce the mood. Be an emotional influence that makes you take the slide's message more seriously. Where the text talks about the reasons why other tokens fail, you see a line representing something going down in value fast. For some reason, just looking at it makes me feel sad, the "oh no my investments" kind sad. Which I believe was the whole goal.
edit: updated, credited. Thank you!
The main thing to remember is that people just had a very different way of thinking about the exchange of goods and services back then. It wasn't about financial transactions or maximizing economic returns, it was much more about building up cred and standing within a community.
Where financial transactions really come in is being able to facilitate exchange between two communities where that underlying foundation of trust and persistent social connection doesn't exist. This is why marriages between "clans" or "tribes" or whatever would often be marked by exchange of things that hold value like livestock, heirlooms and handicrafts, or parcels of land. These aren't really "barter" exchanges though, they're more like collateral or shows of good will between two groups or people who don't necessarily have a strong basis for trusting each other.
This is why coinage really starts to come around when you have large kingdoms or empires. Those rulers mint the coins because they control larger swathes of territory than could be governed by the sort-of-feudal interractions of familial obligation. So you start keeping track of things via precious metals instead.
The strongest slide is the team, which includes 2 PhDs, and an MIT research scientist.
>According to researchers from Columbia Business School and London Business School, businesses led by women are 63 percent less likely to obtain venture capital (VC) funding than those led by men.
I know this preference is a trope for people on HN (I mean, look at the HN layout) but it's strange to me that VCs apparently have such different preferences.
I think the idea is that the scammers might be pre-qualifying their prospects for gullibility before committing further time to closing the sale.
See:
https://www.microsoft.com/en-us/research/publication/why-do-...
Via the book Think Like A Freak which I’d guess extrapolates from it. But it seems like one of those ideas that has gone from plausible explanation to fact in popular imagination.
If you weed them out right at the beginning, exposure doesn't happen as quickly.
Moving down the funnel means increasing time investment for the scammers, too. Better to spend those hours on someone gullible.
> Maybe this strategy is similar to how the Nigerian scammers work: put some obvious errors in the text, anybody that misses those is probably well worth the time invested and those that cancel early would have cancelled anyway, an optimization strategy.
Probably the biggest is just that they have a bias to be bullshitted (bullshat?). The are constantly searching for the next big thing, so they need these things to be true. They want them to be true. And human nature makes them scared of missing out.
Also, most of the VCs out there are not investing their own money, and have never actually operated a business. This is why they ask the same questions with slight variations, and get obsessed with metrics that may or may not apply to a given business. This also makes them easier to fool, although many make up for this hands-on inexperience with enough years of watching startups that they can "pattern match" rather than understand things from first principles.
Most also develop specialties. You're not going to fool an experienced blockchain VC with the made up or cherry-picked bitcoin numbers. But go next door on Sand Hill Rd and you can probably get away with it.
2. Most of the people staffing VCs were not necessarily successful investors. Many were people in their 20s escaping the NYC banking scene to be analysts in VC. These days, there are many people on the capital side that are ex-entrepreneurs, but that still doesn't mean they know how to spot a deal.
3. It does not always make economic sense to try to out a scam. If your model is that you find one mega-return to erase 100 failures in your portfolio, you actually go around looking for deals that sound insane (like Theranos). If other reputable VCs have already led the round, you just throw your money in without even investigating.
4. Most importantly, most VCs don't fall for anything this crappy. The target is likely individuals with net worths in the millions who aren't very business savvy. There are lots of such people (children of wealth, for example).
You'll never guess what happened when it passed $17,000
It helped a lot during demonstrations.
I believe what happens is that they think about the idea. What if there were some kind of bitcoin powered investing platform. Sort of like angellist but the block chain would ensure the funders were real and the money was in some crypto?
Yes, that could work. Wow, it could be worth a lot! Imagine all the startups that could get funded and omg where do I sign?
This wouldn't happen if you went for a visit, and the person -- lets assume they mean well and are not lying -- logged in and the screen was a little awkward. There were zero companies signed up because the authorities had not signed off on it yet. There are two companies waiting: a fast food franchise and a t-shirt company.
The gap between what could be and what probably is, is very wide till you actually look at the thing.
Then I found out... they DID got scammed, in a rather elaborate way:
some guy (that I won't name here, but you can find out who it is) seemly created a mobile games company, made some simple but wildly successful games (in donwload numbers), and then started to put ad fraud after ad fraud on the games, Apple started to ban him, but he would find other ways to get back, meanwhile he would accumulate cash, then he rented an office, built a seemly legitimate company, and asked the VCs for money, and as proof of his business working as intended, gave to the VCs the data about his income...
Eventually Apple and Google figured out how to kind-of get rid of his frauds permanently, seemly he found one last loophole, moved all apps to a new account that was on his name only (not his company), fired all employees, and took off with Apple's and VC's money.
I was told Apple ended taking the hit, they gave all the defrauded money back to advertisers, but couldn't get the money back from the scammer.
So to reply to your question: if you have data, for example (fraudulent) income, it is easy to convince VCs... for the first time.
Since on the second attempt they believe even real business (like mine) is a fraud.
They are all simple stupid games (think floppy bird, although games in question are not that one)
https://www.wsj.com/articles/stablecoin-project-basis-is-shu...
"I.. have made enough money on .. own .. so I aren't stupid"
- rich people by inheritance. They might have been spoiled and thus required little due diligence in life; or simply they are dumb and believe the hype.
- rich people by accident. They are not particularly bright. They invested in real-estate very early on because that's what they know at the time. Then real-estate appreciated significantly in the last few decades in their area and they are crazy rich.
- people managing other people money. they have to invest in "blockchain" and stuff and they get introduced via their circle. It's not their money at the end of the day; and if the VC fund collapse they'll manage to jump to the next one thanks to the networking circle they were busy building during their last tenure.
PS - no affiliation
Edit: Not sure why I'm being downvoted, added this because I genuinely think it is a good additional step for seed investors and HNIs investing in startups to ensure the legitimacy of the claims made in a pitch deck.
I've seen pitch decks where companies claim they have 100s of customers like Amazon, etc. Whereas their revenues on P&L are like ~$20,000 per year.
I am quite often checking on potential business partners using the relevant company registry. Looking for owner structures and latest balance sheets.
Good to know that this is possible for the UK too (I wonder if that is why India Ministry of Corporate Affairs allows this too). As a director in a private company, I always viewed this as a possible privacy violation (that anyone, including bad actors could know my income if they wanted to).
And some people will do what ever it takes to convince you, like; lie, obfuscate, appeal to emotion etc...
it's extra funny because I know a startup that did basically that and is quite successful; but of course it focused only on the coin service exchange part and throw away the bitcoin / services nonsense.