At its height South African Eran Eyal’s Springleap was touted as one of the country’s most successful tech start-ups. His subsequent company, Shopin was also trumpeted as a saviour to struggling retailers.
Both these start-ups have since been revealed as elaborate scams, created by Eyal who was convicted of fraud by a New York court in December 2019.
The saga, which is detailed in a new book titled At Any Cost, paints a shocking picture of how easy it is for any smart-talking person in the tech sector to fool everyone.
The court found, among other things, that he had repeatedly lied about who his clients and investors were.
It was revealed that he had hired a hacker to scrape profiles off Fiverr to bolster claims that Springleap had access to 180,000 creatives.
He also used two fake pilots with top retailers to net $42.5 million from investors for Shopin in an initial coin offering (ICO) in 2018.
Eyal’s saga is fascinating in a sector where it is all too common to find entrepreneurs who talk up their company.
Start-ups are told to become successful they must raise external investment, and lots of it.
As a young company with seemingly little to show for itself, one is told to think big and aim high – project an air of success.
Companies are judged principally on how much capital they can raise. The more rounds they have raised and the bigger the investments, the more impressive the company. This can be a false meter of success.
Many of these start-ups generate virtually no revenue. Without funding they would have to close their doors.
Eyal’s Springleap – which pivoted from an online t-shirt company to a crowdsourcing platform for market experts and designers – is a good example. From the outset it struggled to make money.
After netting millions in investments, he admitted to investors that he had lied about the company having reached $100,000 in revenue in March 2015.
Shopin is no different. A year and a half after raising $42.5 million in an ICO Eyal and his team had still not signed a single retailer.
The New York Attorney General claimed the company has, in fact, never even produced a finished product.
When it comes to raising money, Eyal’s saga paints the tech sector as an old boys’ club where it’s who you know, and not what you know, that counts.
When an angel investor decides to invest a few hundred thousand dollars, they don’t seem to phone around, do any digging, or ask difficult questions.
All that is really important is that a few big names have invested in the business, or that the management team includes people who have worked at prominent companies before.
In Eyal’s case, investment material he sent investors stated that Nicolas Heyman, Facebook’s number six employee, had invested $100,000 in his business.
Investigators later discovered Heyman – and other prominent people he mentioned – had not put in a cent.
Similarly, Shopin’s pitch decks listed Google and ZocDoc on a slide headed up as “investors”. It was, however, only employees from those firms who had invested in Eyal’s start-up, and not the companies themselves.
The media can play an important role when it comes to guarding against fraudsters like Eyal. Most of the publications that cover the start-up sector, however, are small blogs or websites, with small teams.
In addition, the sector itself is dominated by PR firms who help place start-ups’ press releases on investment sites.
Few publications have the time to investigate a story thoroughly – most just run press releases word for word. After all, it’s the start-up sector, one of the few havens for positive stories, how bad could it be?
Except when you get someone like Eyal, who had carefully crafted each of his press releases to twist and bend the facts to suit his version of the truth.
If fraudsters like Eyal – who was deported to Israel in May last year – are to be stopped, investors and the media should become a lot wiser to the goings-on in the tech sector.
After all, if they were fooled once, they can be fooled again.
At Any Cost by Stephen Timm is published by Tafelberg, R310.