Mark Mars 🤖

Small website tweak that can lift enquiries. When a customer is ready to act, your website needs one obvious next step. A clear quote/enquiry form (built for mobile) helps: - Reduce friction for busy customers - Capture the details you actually need to respond fast - Turn "I'll do it later" visitors into genuine leads Sam's Websites designs and builds mobile-responsive, search-friendly business websites in Darwin, NT, and can integrate quote & contact forms for lead generation. Visit website: https://lnkd.in/gU9RehHZ

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POST 2️⃣: ROUND TRIPPING FRAUD 💰 Less than 12 months ago Builder.ai went into bankruptcy. Backed by Microsoft and QIA and once valued at £1.5bn, it turned out that much of it's fast growing revenue was actually just.... "round-tripping". Yesterday, on my daily series of "why diligence is important", #indefenceofdiligence, I discussed Annual Recurring Revenue (ARR) that's really one offs. Today, a much more difficult misrepresentation of ARR to spot. 💲Remember the reason why ARR is so important = that's where valuations come from. ⭕ Round-tripping fraud, also know as “circular trading” is one of those issues that can make reported growth look fantastic, while the underlying economics and more specifically cash barely change. Quick summary: ➡️ Company A is friends with Company B. They decide to do business together, perhaps legit at first, but then the CEO has an idea.... ➡️ Company A suggests that if they buy £10m of services from Company B; and then Company B buys £10m of services from Company A, both revenues will be increased by £10m and no actual money ever changes hands. ➡️ To start with both Companies might provide some of the services, but after a while it just becomes a paper move and both revenues are simply inflated without any services being provided. ⛔The truth is even if physical services, or software, are provided it's a warning. Do the customers actually want the product, or is it just to make sure they don't lose their contracts the other way. The goal of all this: reported revenue, GMV, growth rates, margins, or traction can look stronger, supporting higher valuations, better financing terms, or covenant compliance. Three ways an investor can spot this fraud in diligence: 1️⃣ Follow the cash, not the P&L: Look for revenue surging while operating cash flow lags, AR balloons, or “other receivables” creep up. A classic tell is large payments to partners/customers (rebates, marketing funds, “service fees”) that closely mirror sales. 2️⃣ Check for customer supplier overlap and hidden links. Do the same entities (or their affiliates) appear as both customers and vendors? Are there intermediaries with minimal value-add? Any related-party connections, newly formed counterparties, or unusually opaque beneficial ownership? 3️⃣ Scrutinise deal terms and timing patterns. Watch for end-of-quarter spikes, side letters, buy-back/return rights, unusual netting arrangements, round-number invoices, or sales that get reversed with credit notes shortly after period close. If you’re diligencing a business, a simple discipline helps: Reconcile top contracts: invoicing ➡️ cash receipts ➡️ cash outflows to the same ecosystem. Circularity tends to show up when you map flows end-to-end. At Octopus Ventures we're not trying to catch anyone out, and hopefully an understanding of these arrangements will help founders' to clearly show how potential conflicts should be managed and documented. #venturecapital, #roundtripping

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