Are you the next Steve Jobs? Good luck raising money in 2023

Another season rounds the corner with another young tech founder accused of fraud. This time it's Charlie Javice, who like others before her, graced magazine covers and 30 under 30 lists with a compelling origin story and the promise of a better world, and was rewarded with many millions of dollars. Now JPMorgan Chase & Co. is accusing her of making up customers as part of a massive fraud when they acquired her college financial-planning site, Frank.

This is getting old. Javice joins a parade featuring Theranos's Elizabeth Holmes, WeWork's Adam Neumann and FTX cofounder Sam Bankman-Fried, to name a notable few. There have been many others who got less attention. They all fit the same profile: all young, at least when they started, with grandiose mission statements. But they at best massively overhyped what their business could really do while enriching themselves, with the worst accused of outright fraud.

Happily, we can expect less of this in the future. Two trends that enabled people with little business or industry expertise to win millions or billions of investor dollars are coming to an end: low interest rates and an investing culture that fetishised youth in the tech world.

We're still left with the impression that there's a lack of ethics among young tech entrepreneurs. But every generation has its share of people capable of massive fraud. There have certainly been frauds in the past and present from all age groups. One 2011 survey found that the most common age to commit fraud is between 35 and 46, though these schemes tend to be much smaller. The difference with tech millennials is that they were bestowed at a young age with a massive amount of capital, which made for a spectacular blowup and a big news story.

After the stunning success of young founders like Steve Jobs, the "Pay Pal Mafia" and Mark Zuckerberg, investors in the tech sector associated youth with vision and a big payday. Tech was supposed to change the world, and being older meant being wed to old norms and processes that would hold you back. 

A few years ago Paul Graham of venture capital firm Y Combinator told New York Times Magazine, "The cutoff in investors' heads is 32. After 32, they start to be a little sceptical." That thinking spawned countless stories of ageism and tech founders more worried about maintaining a youthful appearance than a Hollywood starlet.

But by associating youth with vision and the ability "to move fast and break things," investors undervalued traits that normally would be considered important, like industry and business experience and a track record of being successful, honest and ethical. Despite the preference for youth, research finds that when it comes to investing in unicorns you're better off with an older founder.

All this was encouraged by the low interest-rate environment.  Low rates increase the appetite for risk, and what's riskier than giving millions of dollars to a 25-year-old? 

Making a long-shot bet that you've found the next Zuckerberg or Jobs is easier when capital is both cheap and plentiful. A young founder may not know how to turn a profit, but the potential for big rewards far into the future was still worth the money for some investors when the prevailing assumption was that rates would remain low enough that they could afford to wait decades for the payoff. 

Before the tech boom, when interest rates were higher, investors had to be more discerning and hands-on in the vetting process. But as rates fell and capital flooded into tech from foreign investors and pension funds, investment funds took more risk on unproven talent. And that unproven talent often proved to be immaturity mixed with delusions of grandeur. This dynamic meant the line between over-hyping your business idea and fraud became too thin in recent years

Times are changing and this investing phase may be seeing its last days. Rates are rising and there are reasons to think they will stay high, or at least higher than in the past decade. Capital may not be so plentiful with rising debt and less globalisation. And now after so many investments going embarrassingly wrong, perhaps tech investors' preference for less experience will wane.

In that case, fraud will continue to crop up as it always has, but hopefully, there will be fewer stories of 20-somethings with big dreams and bigger talk fooling experienced investors who should know better.

Sketch: TBS

Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of "An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.