From 400 Million Dollars of Funding to an Arrested CEO - The Story of Three Start-Ups
And How I Would Restart My Consulting Company- Community Update #19
Photo by Austin Distel on Unsplash
As any good entrepreneur knows, funding is a critical component that can make or break a start-up.
In order to secure these much-needed investors, naturally, the product or service must be one that the investor feels can be successful. Aside from this, financial data is the most important element. Discover the role data played in the story of three start-ups, from 400 million dollars of funding to an arrested CEO.
CEO of Unicorn Start-up Gets Arrested: The Story of HeadSpin
On August 21, 2021, Manish Lachwani, CEO and co-founder of HeadSpin, was charged with one count of wire fraud and one count of securities fraud by the U.S. Department of Justice.
These allegations were made after an internal audit exposed HeadSpin’s key metrics and annual revenue as being significantly less than what was reported to investors. Under Lachwani leadership, the unicorn start-up had a peak valuation of $1.16 billion. This impressive valuation attracted notable investors, including Tiger Global, Alphabet GV and Dell Technologies Capital. The internal audit revealed that Lachwani exaggerated the annual revenue of the company by as much as $55 million dollars, with an actual valuation of around $300 million.
The investigation led to findings where Lachwani was “instructing employees to include revenue from potential customers that inquired but did not engage Headspin, from past customers who no longer did business with Headspin, and from existing customers whose business was far less than the reported revenue. Among other information, Lachwani provided investors false information that overstated Headspin’s annual recurring revenue (ARR) – a key metric for evaluating the success of companies that provide “software as a service” by approximately $51 to $55 million.” -Justice.gov
Is anyone else getting a sense of deja vu?
Perhaps a little bit of Enron or…
Many of you might recall Wirecard’s fraud which also involved a combination of accounting irregularities and artificial inflation of profit or perhaps Luckin Coffee’s $300 million inflation of profit.
Even billion dollar companies seem to over believe in the concept of fake it till you make it or EY happens to audit you.
Back to Headspin.
In addition to the charges brought forth by the Department of Justice, a lawsuit has been filed by the Securities and Exchange Commission that claims Lachwani fraudulently obtained more than $80 million from investors. Lachwani has been replaced as CEO of HeadSpin and the company is returning $95 million to investors. The former CEO faces a maximum of 20 years in prison along with the possibility of fines exceeding $5 million dollars.
Ok, but what is Headspin?
HeadSpin was founded in 2015 and quickly captured the attention of investors and those in the tech industry. As a mobile application testing service, the hybrid cloud-hosted and on-premises infrastructure provides valuable insight into the inner workings and overall functionality of both Android and iOS apps. This streamlines several tasks for developers and aids in creating a better user experience.
Despite the arrest of Manish Lachwani, the new CEO of HeadSpin aims to keep the company on track. With the company discovering the fraud on their own and releasing the information, it seems as if they are getting ahead of the bad press and correcting the wrongdoing.
Daitaku Lands $400 Million
Daitaku reported a whopping $400 million as Series E Round funding at a $4.6 billion dollar valuation. With this new cash infusion, the start-up has now garnered $647 million since its inception in 2013, with its largest funding round occurring in 2018. Repeat investors such as Tiger Global(Hopefully they won’t get tricked again), Firstmark Capital, Snowflake Ventures and ICONIQ Growth contributed to the funding, along with new ones, including Insight Partners and Lightrock. The company aims to use the newly secured capital to further develop their existing technologies.
Daitaku is a data science platform maker that believes the use of technical concepts like data science and Artificial Intelligence (or AI) should be accessible to businesses of all sizes. Their focus is on democratizing these technologies to enable more collaboration and inclusivity with data science and AI throughout all branches of a company. Unlike other platforms that require trained data scientists for thorough operation, Daitaku enables data analysts and even business analysts to successfully work with data to further develop items that utilize advanced AI methodologies.
JP Morgan’s 50 Million Dollar Bet
The iconic investment bank JP Morgan, best known for its strategic investments, took the lead as an investor in a $50 million Series B funding round. Others, including Citadel Securities, Kera Capital and Vanderbilt University, joined JP Morgan in the funding round for the start-up Aumni. The funds secured in this round will be dedicated to expanding partnerships and further focusing on the growth of the company’s technologies.
Aumni was founded in 2018 and the company describes its software as a “decision-making tool” that is backed by data, human knowledge, and Artificial Intelligence (AI). Users of Aumni use the software to make solid investments that are based on analytics and backed by humans with industry expertise. Aumni also provides immense benefits to businesses such as conducting reviews and analyzing data points. With Aumni’s innovative AI platform, businesses can also reduce their audit workload by over 50%.
In The End…
There are clearly a variety of ways you can get funding for large investors. Whether you’re tricking investors with overinflated income statements or by creating products that users actually want to use.
Of course, I do hope you chose the latter.
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But if you need consulting help, then feel free to reach out to me here.
Thanks To The SDG Community
I started writing this weekly update more seriously about 8-9 weeks ago. Since then I have gained hundreds of new subscribers as well as 15 supporters! I even got 2 special thanks on Youtube!
And all I can say is, Thank You!
You guys are keeping me motivated.
Also, if you’re interested in reading some of our past issues such as Greylock VC and 5 Data Analytics Companies It Invests or The Future Of Data Science, Data Engineering
Then consider subscribing and supporting the community!
Video Of The Week - How I Would Restart My Data Engineering And Data Science Consulting Company
If I had to restart my consulting company, what would I do differently.
Whether you want to set up a data engineering freelancing company, a data science consulting company or want to contract as a software engineer, you will have to improve your network and niche down.
There are a lot of different types of consulting companies.
Articles Worth Reading
There are 20,000 new articles posted on Medium daily and that’s just Medium! I have spent a lot of time sifting through some of these articles as well as TechCrunch and companies tech blog and wanted to share some of my favorites!
New Snowflake Features Released in June and July 2021
At Snowflake Summit 2021, we announced that Snowpark and Java user-defined functions (UDFs) were starting to roll out to customers. These features are now available in preview to all customers on AWS and represent a major advancement in data programmability, enabling you to more easily leverage Snowflake’s platform to do more for you.
Snowpark is a new developer experience Snowflake uses to bring deeply integrated, DataFrame-style programming to the languages developers like to use, starting with Scala. Snowpark is designed to make building complex data pipelines a breeze and to allow developers to interact with Snowflake directly without moving data.
With Java UDFs, customers can run their Java code right inside of Snowflake for better performance, greatly expanding the transformation capabilities and reducing the management complexity of hosting external services.
Data Careers: Building and Leading Modern Data Teams
The single-most overlooked thing about starting a business is how hard it is to hire great people. It’s not just finding those great people, it’s getting them fired up to come work for you, evaluating skills, personality and potential in just a few hours. Hiring is really, really hard, especially when hiring for data roles.
It’s no surprise then, that our session about hiring for, building and developing modern data teams ended up being wide-ranging and very illuminating. The kickoff session for the fourth day of the Operational Analytics Conference featured
9 Best Tools for Data Quality in 2021
The volume of data streaming in from different sources makes data quality hard to maintain during analysis. A survey of data professionals carried out by Dimensional Research showed that 90 percent admitted: “numerous unreliable data sources” slowed their work. Meanwhile, our State of Data Quality in 2021 survey found that data quality is the top KPI for data teams, showing just how vital it is across organizations.
It is hard to maintain data quality when faced with inaccuracy, complex data structures, different data types full of duplicates, and poor labeling. Even though challenging, quality data is essential for any organization to make data-driven decisions. Harvard Professor Dustin Tingley in Data Science Principles agrees that "to transform data to actionable information, you first need to evaluate its quality."
End Of Day 19
As companies continue to get millions of dollars in funding, there will always be fraudulent actors.
Many who have never been caught.
Perhaps there are companies we know today that committed fraud to get funding but were able to become successful before anyone caught them.
But at the end of the day, I would never want to walk that line.
If you’re out there creating a start-up, then I wish you good luck!
Thanks for reading.