Startups "falsify data" and valuation impulse is hard to suppress

A reporter from the "Daily Economic News" found that Meiyu and Dayima are not the only ones who have been questioned about data fraud recently. Qingting FM has also been pushed to the forefront due to the exposure of data fraud.

It was reported that in its recent financing summary, Qingting FM gave a DAU (daily active users) of 6 million and a user base of over 120 million. However, it was later revealed that this was far from the DAU of 10 million and a user base of 200 million reported in its Sina report and promotional copy a year ago. In response, Qingting FM issued a statement on August 31 to refute the rumor.

Why are they always Internet startups?

In a statement, Qingting FM said that a number of articles maliciously smearing Qingting FM have appeared on the Internet, with obvious signs of artificial hype, clinging to hot topics to mislead the public, and causing direct damage to the image of Qingting FM.

Qingting FM said that the smear article was to achieve its purpose by carefully piecing together data and taking out of context, and intentionally confusing different categories of concepts for comparison. In 2016, Qingting FM's total number of users and user activity steadily increased. According to the monthly data report released by Analysys, Qingting FM ranked 95th in the overall APP ranking in July. Among the four core statistical data, three of them, such as user growth rate and activity, ranked first in the sub-industry, and only the number of existing users ranked second in the industry by a narrow margin.

In addition, Qingting FM claimed that it had completed its D round of financing, and that investors in each round were well-known domestic investment institutions, top Internet companies or state-owned media groups. The false reports were suspected of misleading the public and constituted defamation and slander. The company said that its legal department had already obtained a large amount of evidence of human acts and would pursue the legal responsibilities of the defamers and intentional disseminators.

The above-mentioned companies being suspected of data falsification are not isolated cases. But why are startups, especially Internet startups, more likely to be suspected of data falsification?

Chen Wei, senior consultant of ChinaVenture, said that "increasing the valuation" is the fundamental reason. He told the reporter of Daily Economic News that increasing the valuation means that the proportion of shares sold remains unchanged, and the direct result of doing so is that more funds can be raised. For enterprises, the cost remains unchanged, and this data is relatively difficult to falsify because only enterprises have the background data. From an investment perspective, it is nothing more than wanting to hand in a good answer sheet to make potential investors feel that this is a company worth investing in and can generate greater profits.

According to Chen Wei, although Mayu and Dayima both released their own background data in the statements, it is difficult to tell how credible they are without data from third parties.

As for whether data fraud is related to the assessment mechanism of Internet companies, that is, the basic KPI assessment indicators will need operational data to quantify. Chen Wei believes that the basic reason is that Internet companies are high-growth companies. Before they reach the break-even point, they are always in a state of not being able to make profits, so their valuation cannot be based on the valuation methods of traditional companies. Since there is a method of valuation based on users or the number of active users, and it is recognized and accepted by everyone, then the operating goals of all Internet companies are to obtain active users and some active user indicators. Starting from this indicator, all operating goals or all overall entrepreneurial goals are to expand the customer base, and KPI is obviously established on this indicator.

Data fraud reflects the game between venture capital

As a result, investors are also in a dilemma: either believe it or not.

An investor told the Daily Economic News reporter that generally, early-stage teams don’t have much cash flow, and for early-stage investments, data can only be used as a reference, and the most important value is still the person. However, for projects after rounds B and C, which already have cash flow, the company’s financial data is crucial, and professional financial personnel or lawyers may even be invited to conduct due diligence.

The above investor specifically pointed out that the later the round, the higher the valuation, so the pressure and degree of due diligence will be stricter. He also reminded that due to the large number of projects, some investors are prone to neglect after investment, and in fact, they should strengthen post-investment work. If you pay attention, you will basically understand some of the situations of the invested team, and you will be able to discover any abnormalities in the data in time.

The fact is that although it is said to be a financing winter, there are actually many reasons why investors are unwilling to invest in various strange projects.

In Chen Wei's view, good projects with potential or worth investing in still have no shortage of money. If there is no obvious profit in the short to medium term, or if the project obviously cannot bring a return on investment, then financing will be more difficult; if there is no special feature or innovation, financing will also be more difficult.

Chen Wei bluntly stated that if entrepreneurship is financing-oriented, there is a high possibility of data falsification or strange business fraud.

However, there is a game between entrepreneurs and investors when it comes to financing. It is not that any investment or financing can be given as much as you want. Chen Wei said that when it comes to financing, investors need to understand the company clearly on the one hand, and on the other hand, when negotiating the price, they try to take as many shares as possible with as little money as possible. If a startup company does not have obvious project advantages or does not have any particularly commendable experience, it will not have bargaining power.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.