Venture-backed startups faced higher fraud risks linked to founder control and fundraising conditions, according to research reported by Startup Fortune. The study found VC-backed firms were 54% more likely to face fraud litigation after an IPO than comparable companies without VC backing.
The paper, called “Venture Fraud,” examined 614 U.S. venture-backed startups founded since 2000. Those companies were tied to fraud cases or credible fraud allegations, according to the report.
Venture-Backed Startups And Board Control
Alexander Dyck, Yifan Freda Fang, Camille Hebert and Ting Xu conducted the research. The researchers work at the University of Toronto’s Rotman School of Management. The National Bureau of Economic Research lists the paper as Working Paper 34868.
According to Startup Fortune’s report, Rotman’s summary described several types of cases in the sample. They included SEC and DOJ actions, shareholder lawsuits, securities class actions and credible media allegations.
The allegations concerned misrepresented financials, technology, customers or the use of investor money. The report distinguished those claims from ordinary startup failures. It presented the research as an examination of oversight, rather than founder personalities alone.
Startups with founder-controlled boards were 88% more likely to commit fraud than firms with VC-controlled or shared-control boards, the paper found. Founder-friendly contracts and complicated ownership structures were stronger predictors than founder traits, according to Rotman’s write-up.
The researchers also found a connection between fundraising conditions and later accusations. Startups that raised early money during valuation booms were more likely to face fraud charges later.
Investor Claims And Criminal Cases
The report discussed several cases involving claims about customers, revenue and investor funds. Each case had its own allegations or findings, and the report distinguished their legal stages.
Charlie Javice was convicted in March 2025 of defrauding JPMorgan Chase in its $175 million purchase of Frank. Prosecutors said Javice inflated the company’s customer base, according to the report.
The Justice Department said Kalder founder Gokce Guven pleaded guilty in May 2026 to securities fraud. The case involved misrepresentations about revenue and brand partners while raising nearly $7 million. Grit Daily previously covered the Kalder fraud charges.
In January 2025, federal prosecutors charged GameOn founder Alexander Beckman and Valerie Lau Beckman. The alleged scheme involved more than $60 million raised from investors, the report said.
For related coverage of investor disputes, Grit Daily has reported on the Wondermind fraud claims and the Raftt investor lawsuit. Those articles concern separate matters.
Financing After A Fraud History
The researchers found that fraudulent founders could launch new VC-backed startups and raise financing at roughly the same rate as other founders. The report described that finding as weak market discipline.
The paper won a 2026 John L. Weinberg/IRRCi Research Paper Award, according to Rotman. The award was associated with the University of Delaware Weinberg Center and ECGI Corporate Governance Symposium.
Startup Fortune’s account called for investors to take board seats and information rights seriously. It argued that boards should monitor companies after a financing round, rather than wait for regulators to intervene.
