IPOs Are About the Future

Here’s a little thought experiment. Let’s say that you run a tech startup that is looking to do an initial public offering, and you would like to do fraud. You want to raise a lot of money from public investors at a high valuation, and you are willing to lie to do it. How should you lie? (It goes without saying that nothing here is legal advice.)

One obvious idea is: You could fake your financial statements. If you had $10 million of revenue last quarter, just write that you had $100 million. Investors will pay more for more revenue, so you will raise extra money at a high valuation.