When Growth Goals Turn Dirty
You’ve built your Malaysian SME through years of hard work. You’ve survived tough times, and now you’re eyeing expansion. Maybe you’re talking to an investor or thinking about applying for a government grant. That’s normal. But a new study from Imperial College and Emlyon Business School suggests that the very pressure to hit aggressive growth targets can nudge founders into dishonest behaviour — and investors often co-create the problem.
The research, covered by TechCrunch, examined fraud cases by tech founders prosecuted by the SEC and DOJ between 2000 and 2023. It found that fraud isn’t just something that happens in faraway Silicon Valley. It happens wherever startups chase investor expectations.
TL;DR: Companies that take VC funding face a higher risk of fraud charges compared to those that don’t. The reason isn’t just “bad founders” — it’s the combination of extreme growth expectations, weak board oversight, and investors who don’t penalize misconduct. For Malaysian SME owners, the lesson is clear: get your governance in order before you accept any outside funding.
What This Means
The researchers describe a process called “façading” — a slow slide from stretching the truth into flat-out deception. There are three stages. First, surface façading: founders exaggerate how well the company is doing, which might feel like “pitching a vision” but crosses the line into lying. Second, reinforced façading: they create fake documents, contracts, or revenue records to support the initial lies. Third, deep façading: they build an entire parallel reality, complete with fake demos and fabricated partnerships.
This is not about a little marketing puffery. We’re talking about fraud that ends up in courts. Famous examples include Charlie Javice of Frank, Gökçe Güven of Kalder, Do Kwon of Terraform Labs, and the founders of GameOn. All of them were charged with securities fraud.
The University of Toronto also published a report in June that looked at 654 fraud cases against US VC-backed startups from 2000 to 2023. That report found that fraud is rare overall, but startups with venture funding are more likely to face fraud charges than those without. It also found that startups launched during overheated markets with weak oversight are 19% more likely to commit fraud.
Here’s the part that should make you think twice: startups where the founder controls the board are twice as likely to commit fraud compared to startups with investor-controlled or shared-controlled boards. That’s a huge red flag for Malaysian SMEs, where many owners run their companies like a family affair.
“Fraud is much more common and normalized in the startup world than we are ready to admit and accept.” — Tim Weiss, co-author of the report
How This Applies to Malaysian SMEs
Malaysia has a vibrant SME ecosystem, with many businesses started by founders who still hold 100% of the shares. If you’re one of them, you might not have a formal board of directors. That’s fine for a small business, but the moment you bring in an external investor — whether from a local VC fund, a government-linked venture arm, or an angel network — the dynamics change. Suddenly, you have someone demanding monthly growth reports, revenue targets, and aggressive expansion plans. The research suggests that under this pressure, founders are tempted to exaggerate progress. It starts with a slightly optimistic sales forecast. Then a “confirmed” order that isn’t real. Then a forged invoice.
For SMEs in Malaysia, the risk is even higher because many owners lack a firewall between their personal and business identity. You own the company, you run the board, you make every decision. That’s exactly the condition that the research links to fraud. The solution isn’t to avoid funding — it’s to build a proper governance structure before you need it. Appoint independent directors, even if they’re just trusted peers. Create a formal board with clear roles. Require audited financial statements, even if your company doesn’t legally need them yet. These steps protect you from making a bad decision under pressure, and they also protect you if someone else in your company tries to fake a number.
There’s another side to this that’s often ignored. If you’re a Malaysian SME owner who has grown successful, you might become an investor yourself — or sit on the board of another startup. The research says investors often “co-create fraud” by continuing to back founders who’ve previously been accused of misconduct. In Malaysia, where the business community is small and closely connected, you might hear about a founder who had a scandal. The research found little evidence that past misconduct prevents founders from raising new funding. That’s a warning: the market often ignores fraud history, so you have to be extra careful not to normalize it. Do your own due diligence. Ask hard questions about the other founders’ history. Demand board representation. And for your own business, don’t let an investor push you into targets that aren’t realistic. It’s better to miss a target and be honest than to hit it with fake numbers.
Finally, consider the Malaysian context of reporting and oversight. The research notes that public companies undergo more scrutiny than private ones, and that founders don’t have a professional body to enforce standards of conduct. In Malaysia, many SMEs are private and stay private for years. That means fewer external checks. You have to create your own checks and balances. That might seem like a hassle, but it could save you from a lawsuit — or worse, a criminal charge.
Practical Takeaways for Malaysian SME Owners
- Before signing any funding agreement, insist on a board structure that includes independent or investor-appointed directors. The data shows founder-controlled boards are twice as likely to be associated with fraud.
- Set realistic growth targets with your investors. If an investor pushes for numbers you know are impossible, walk away or push back. The research found that startups in overheated markets are 19% more likely to commit fraud — don’t put yourself in that position.
- Create a simple internal audit process. Monthly financial reviews, a second pair of eyes on invoices, and access to the actual contracts. If you’re a sole founder, hire an external accountant to review your books.
- If you’re an investor or adviser to other SMEs, don’t fund a founder who’s had a fraud allegation without strong oversight. The research shows the market often ignores past misconduct — that’s a failure, not a signal to follow.
- Act like you’re a public company even if you’re private. Share your financials internally, open your board meetings to a mentor, and treat compliance as part of your culture.
What the Numbers Say
| Finding | Detail | Source |
|---|---|---|
| Fraud cases analyzed | 654 cases against US VC-backed startups (2000–2023) | TechCrunch |
| Overheated markets | Startups launched in overheated markets are 19% more likely to commit fraud | TechCrunch |
| Founder-controlled boards | Twice as likely to commit fraud than investor-controlled or shared boards | TechCrunch |
| Fundraising after fraud | Little evidence that fraud prevents founders from raising new funding | TechCrunch |
The Bigger Picture
This research is a reminder that fraud rarely happens in isolation. It grows in an ecosystem where investors demand impossible growth and founders are afraid to say no. For Malaysian SMEs, the longer-term trend is clear: as more local venture capital flows into the market, and as the government continues to promote startup growth, the pressure on founders will only increase. The companies that survive and thrive will be the ones with strong governance, honest reporting, and a board that can say no to unreasonable demands.
You may think this doesn’t apply to you because you’re not aiming for a unicorn valuation. But the principle holds for any business that accepts external funding or even a large grant. The moment you have someone to answer to, you’re at risk of smoothing over imperfections. The antidote is to build systems that reward honesty — and to hold your investors to account as much as they hold you.
The researchers propose that regulators should investigate startups after they hit a large investment threshold, rather than waiting for whistleblowers or lawsuits. That’s a good idea, but it would be even better if founders and investors regulated themselves. Don’t wait for the SEC or the Malaysian Securities Commission to come knocking. Set your own standards now.
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