Apr 22, 2024 - Business

Silicon Valley tech founder sentenced to prison for fraud

Illustration of Benjamin Franklin wearing a burglar's mask

Illustration: Sarah Grillo/Axios

Manish Lachwani is co-founder and former CEO of mobile app-testing company HeadSpin, which once was valued at more than $1 billion by venture capitalists. He's also about to become a federal inmate.

Why it matters: This is a stark reminder that "fake it 'till you make it" cannot include providing false information to investors, even if those investors are later made whole.

Driving the news: Lachwani on Friday was sentenced to 18 months in prison, after pleading guilty to two counts of wire fraud and one count of securities fraud.

  • He also will be required to serve three years of supervised release after leaving prison and pay a $1 million fine. A hearing on restitution is scheduled for July 31.

Catch up quick: Lachwani was charged in 2021 with lying to investors, both to raise capital and to enrich himself.

  • He inflated company financials, lied about customer contracts, and altered invoices.
  • HeadSpin used this bogus info to help raise around $117 million from firms like Google Ventures, Iconiq, Dell Technologies Ventures, Battery Ventures, Felicis, and Tiger Global.
  • At one point, Lachwani sold around $2.5 million of personal shares.

The bottom line: The defense argued for a lighter sentence because HeadSpin backers were later offered their money back, minus lost opportunity costs, but neither the judge nor prosecutors were in a forgiving mood.

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