Ted Seides, founder of the Capital Allocators podcast, and founder, president and co-CIO of Protégé Partners LLC, shared with us why it is so challenging to detect fraud. There are a few main challenges:

1. Usually, we spend 99% of our time assessing the merits of an opportunity but 1% of our time thinking if what we see is real. The fraudster spends 100% of their time staying two steps ahead of you.
2. Not all frauds started that way. Some became frauds to cover up losses.

Recently, there have been more frauds because, in the start-up world, the environment encourages that. We often say that periods of significant challenges are also periods of grand opportunities. This means that if there are great investments that potentially give outsized returns, the attributes also lead to fluff and overpromised ideas. Ted then shared with us how he could not detect certain frauds and suffered through them as well:...