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Comment by cabcabcab | Hacker News Reader

This is super common in the Valley. This isn't the exception it's the norm.

Every single angel investor I have ever pitched asked for/suggested this.

If this is illegal 99% of the Valley is committing fraud.

There's a huge difference between angel investors taking a share of the company and acting as an advisor and what happened here.

When you talk to these angel investors, do they offer you contracts for your new company at their existing companies? Like if you sell product X as part of your new company, are they saying they'll make sure the companies they're involved with buy product X if you give them shares of the company and cash kickbacks? If not then your comparison doesn't hold.

I think what you're describing is an investor in two companies setting up deals between those companies. There is nothing wrong with that because the investor is in the role of a part owner in both cases. They're not an employee of either company. But I'm guessing, it's not clear to me exactly what kinds of arrangements you're referring to.

Hold up -- Angel investors give you money in exchange for equity. That's usually how it works. Are you saying that instead of giving money, these angel "investors" are executives a major companies who are trading customer deals at the company they work for in exchange for personal equity? Or are you just saying that they invest their money and provide connections in addition to their money?

In the primary situation, they are benefiting by getting stock in exchange for giving their company's business to the startup (illegal kickback). In the second situation, they're referring companies they have a personal financial interest in for business to enhance the value of their investment (conflict of interest).

Need more specifics.

That's more of what I'm looking to substantiate...thank you.

There is also the role of the VCs who facilitate much of this. They use VPs in big companies to offload crappy purpose built startups for huge profits then get their friends to offer the VP sweetheart deals and or future employment. AFAIK the arms-length / chinese walls keep it legal in appearance. Basically any big tech company with lots of money and terrible management is prone to this.

This is also common in government contracting.

When you say "offload" crappy startups, do you mean getting the company acquired by that company or purchase the startups products?

Acquisitions. Say a big company lacks in category, an exec from that company can let a VC know that they would like to buy a company in that category and are willing to pay a certain amount. The VC then goes about bringing the company into existence. Do a song and dance about how it's a real company. Buy a bunch of positive press. Cram it full of new grads. Then before it can collapse under its own weight offload it.

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