April 24, 2023

Get ready for a new kind of startup scandal

With the end of easy money, it’s going to be politics, not egos that make startups crash and burn.

Eleanor Warnock

3 min read

Tech has been an invaluable source of inspiration for books and television in the past decade. Thank you, Elizabeth Holmes, for Bad Blood and The Dropout. Thank you, Adam Neumann, for WeCrashed. And I’m going to echo the rest of the internet in asking for Jonah Hill to play Sam Bankman-Fried in the inevitable FTX movie. I have my popcorn ready. 

There are two common threads to these infamous tech fiascos: self-obsessed founders overselling their companies, and greedy investors who chose to drink the Kool-Aid. It's probably safe to assume that Theranos's investors didn’t find the adaptations as entertaining as me. 

These personality-driven scandals were also a product of a particular moment in time. We were living through arguably the easiest financing environment in history (negative interest rates, yo). Investors needed to find a place for their money to earn a nice return, which created the perfect conditions for a charismatic founder with a big vision to raise hundreds of millions for something very shaky. 


Now, central banks are raising rates. Inflation is up. The easy money music has stopped. Why take a bet on a risky startup when you can get over 4% interest on a savings account with Apple and Goldman?

There will be new scandals for a new time. Here’s my bet: there are going to be a lot more involving startups, governments and politicians. 

We’ve had a taste in recent weeks. UK PM Rishi Sunak has faced questions about his wife’s investment in London childcare startup Koru Kids. The company could be a beneficiary of a new policy that gives financial incentives to childminders who sign up through agencies like it. Sunak has since declared his wife’s shares. 

Last week, Sifted reported that a political corruption scandal at a public body in Poland responsible for distributing EU-funded grants means dozens of startups haven’t gotten their cash. Some are facing bankruptcy. 

Governments have become much closer to startups since Covid, when many startups had to accept government loans and investment to stay alive. More will come out about these investments. 

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Plenty of former politicians and government folk have "retired" into tech advisory roles — but we’re sure not all of those relationships began when their jobs in the public sector were over. 

The climate tech boom — and the regulation that will come with it — will also create more intersections between governments and startups. There are many opportunities in opaque procurement systems, poorly regulated subsidies and grants and kickbacks on offer for favouring one gigafactory over another.

Backscratching is rife in the world of tech and VC. Most companies — and firms — are black boxes. The transparency that’s required of public officials is very much lacking.

I don’t doubt the characters that will populate these scandals will be just as colourful as the ones we’ve seen over the past decade. Bring on the Netflix series.

Eleanor Warnock

Eleanor Warnock is Sifted’s deputy editor and cohost of Startup Europe — The Sifted Podcast.