Shouldn't any halfway decent investor discover this when performing due diligence? Or is there more stupid money out there than I realize?

There is a LOT of money out there, and most of it is stupid.

How is an investor going to realize that some manufactured needs over time for 2 more developers here or 1 more there are not _really_ needed to run the company at some objectively higher level of efficiency?

I can't tell if you are being sarcastic or if this is intended as advice

Lots of what startups do is some kind of fraud. Whether you're defrauding investors like `resters idea or defrauding users like Reddit's early days (each employee had multiple accounts to make it seem more active than it was) the trick is just not to get caught.

Of course, defrauding investors has a far higher likelihood of getting you into serious legal trouble than defrauding users. And with this one, even if you don't get caught, if it doesn't work out properly you are fucked.

But hey, if it does work, it'll make a great story to tell at your IPO celebration party over a glass of champagne.

Curious... is this fraud? It's certainly duplicitous, but are laws being broken?

It certainly would be fraud [1] the question is, would it be illegal? Not all fraud is illegal, and not all illegal fraud is prosecuted as such (or at all). Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be. The only reason to grow headcount and increase burn rate to unsustainable levels and offset those expenses in the books right before an investor presentation would be to give the investor a misleading view of your company.

You'd be at the very least inviting a lawsuit... that is, if you got caught.

[1]

"Fraud involves misrepresenting facts for the specific purpose of gaining something that may not have been provided without the deception."

https://www.investopedia.com/terms/f/fraud.asp

> Even if it's not illegal, if the startup owner told the investor that they were growing rapidly and used these figures to show that, the investor could sue after the fact for civil fraud and the founder would have a hard time explaining why it shouldn't be.

Civil fraud is illegal, so if it is not illegal, it is not civil fraud.

He was asking if Reddit was fraudulent.

It wasn't.

Please learn the meaning of such serious words before you start throwing them around.

White collar crime in America? That's rich

Makes me wonder how many projects on Kickstarter are some kind of fraud.

Cynical advice can be both.

And given how cut throat fund raising can be I can't blame the cynicism.

Sometimes you're after the same money someone with a much stronger pedigree than you is after. Their false metrics are "Stanford" or ~"involved in building a popular but now defunct protocol" that is no better indicator than working on something.

"Fake it til you make it"