Ponzi 2.0: The wild story of an investment into an Estonian startup that doesn’t exist

An investment fund announces a $16 million investment in an Estonian startup. But there's a problem — the startup doesn't exist, and the funding didn't happen. We unearth the wild scam beneath the headlines.
Ponzi 2.0: The wild story of an investment into an Estonian startup that doesn’t exist

Last week Hedonova, a Paris-based hedge fund, announced an equity investment of $16 million in Series A funding of an Estonian startup called Carbonomy. Where things get wild is that Carbonomy does not exist, and the funding round never occurred. 

The press release states, "Carbonomy is a firm that helps farms become sustainable and increase their revenues by earning carbon credits." 

The news was posted on Cision PR Newswire and picked up across various news outlets, including Yahoo Finance and Investors Observer. Sustainability pundits celebrated the announcement on LinkedIn. Market analysts and tech enthusiasts shared the news.

Say what? 

The news came to light when Mauro Battellini, a co-founder of Black Unicorn PR, was contacted by a startup client. 

I'm intentionally not mentioning the client, as it's unfair to have its name associated with the scammer whenever someone does a Google search. 

Battellini shared that Carbonomy's website text was "directly copied from my client, even mentioning them by name accidentally."

What follows is a cautionary tale. 

Who is Hedonova? 

Hedonova is a hedge fund investment firm that invests in assets like art, wine, real estate, litigation – and startups. Its portfolio is part investment and part income generation, like equipment financing and P2P lending. 

According to its website, Hedonova began in 2019. It claims to have offices globally, including in Tallinn, Paris, Zurich, Latvia, London, and California.

At the time of writing, the funding is listed on Crunchbase with a valuation of $38.5 million. The company has a profile in Pitchbook and Wikipedia, and  Trust Pilot.

In a now-deleted Forbes India  advertorial profile, Hedonova claims it has:

"... amassed over $400 million assets under management from various investors, some storied names like Oman's Royal Family, the sovereign wealth fund of France and Microsoft Innovation Fund while on the other end of the investor spectrum are everyday retail investors."

To be clear, some of its earnings may be entirely above board. But let's take a look at its startup investing.

invest in Hedonova

The company invites aspiring VCs to invest in startups for as little as $5k, citing investment in top companies like Opensea, SpaceX, Swiggy, Flexport, and Robinhood. 

It claims to have invested $18.4 million in Chemie-Tech DMCC, whose website has been inactive since 2016. 

Hedonova reportedly invested $16 million in a Chilean energy storage plant in 2022 and $2 million in seed-stage company Upmarket in March this year.

Regarding industry recognition, Hedonova won Best Multi-Strategy Hedge Fund in the Hedgeweek European Awards 2023. 

Entry criteria require "a track record of over three years and over $50 million."

Pre-selection data for the awards was provided by Bloomberg "based on annualised returns over the 12 months from 30 September 2021 to 30 September 2022."


So who is behind Hedonova?

The company founders are "ex-Morgan Stanley" banker CEO Alexander Cavendish and Chief investment officer Suman Banerjee.

However, an article by Mint in May 2022 raised red flags about Hedonova suggesting another puppetmaster.

It reports that in 2020, a chief executive of an alternative investment firm went to India's Economic Offences Wing with allegations that Hedonova was a suspected Ponzi scheme. 

It alleges that Hedonova's Head of Investor Relations, Neel Aryan Birla, is Minance founder Anurag Bhatia, who was previously jailed for fraudulent and criminal activity and banned from investor activities in India.

"A former staff member who invested in Hedonova before joining the firm said Birla was the only point of contact with staff — "Every time there was a Zoom call, Neel would say his video wasn't working. We asked about Suman Banerjee and other leaders, but Neel always gave excuses — all quite convincing," 

Before quitting, he insisted on one video call, which was recorded. "The speaker appears to be Anurag Bhatia."

Red flag whack a mole

Thirty minutes of googling raises some Hedonova red flags. 

The bulk of their Twitter followers have zero followers. 

Their Trustpilot rating is questionable, considering there are numerous testimonials posted around the same period with similar language —Take a look at the whole lot of sites where you can buy fake reviews.

But what about the team? The team bios look compelling on first glance. 

But CEO Cavendish's photo also appears in an article about MBAs. Co-founder and Chief Investment Officer Banerjee's photo appears on photo stock sites.

Hedonova founders

The photo of Technology Director Richard Gerber also appears in an op-ed by a McKinsey staffer.

Furthermore, CEO Cavendish, who refers to himself as a "neo-economist" on Quora plagiarised his post from Medium back in 2021.

How does this stuff happen?

So how did it happen that we have a hedge fund firm involved in fraudulent activities, and why does it matter? 

I spoke off the record to an experienced venture capitalist from London. Let's call him Jim Jordan. 

According to Jordan, when a VC company does a deal, they put out a press release "because Pitchbook and Dealroom and other monitoring sites will regard it, and it's a key part of how deal discovery happens". 

"The obvious payoff of the scam is in a future round followed by this coverage. And suddenly, you've just magicked up a piece of bullshit that now seems to have a bit of a veneer of respectability because it's received media coverage already. So you can see how dangerous that is." 

Battellini agrees, noting:

"Their modus operandi is exploiting journalists' present-day pressure to get stuff done quickly. Combined with services like press wires and a lot of new SEO-focused media plays that have even less time for fact checking, or who have not employed dedicated journalists, they seem to have created a 'PR front end', and, at first sight, a legit reputation.
Straight out of Ryan Holiday's playbook in 'Trust Me I'm Lying', except that no one bothered to make it realistic or future proof enough. The inconsistencies are obvious and hilarious, yet somehow they are getting published."

When does faking it to you make it become dodgy? 

Jordan admits that there are some aspects of business and tech where people sail close to the wind in terms of exaggeration. 

There's also the potential for an origin story to become exaggerated until it becomes part of folklore. 

I know one founder, a member of the Forbes council, who claimed in an article to be from a poor rural village but tech friends who grew up with him, verified his wealthy parents who they had met. 

Still, exaggeration can lead to a prosperous career as one person knows only too well. 

The story of Steven Bartlett

Take entrepreneur and judge on Dragon's Den, Steven Bartlett. His website originally stated that he "took his company public at 27 years old, reaching a market valuation of $600 million before he resigned." 

His website changed after the media started questioning how big his role was, considering he'd left the company board before the mergers that raised its valuation. It appears to be an  open industry secret.

My colleague Dan recently covered personalised nutrition startup Zoe from Bartlett-founded VC Flight Fund which claims to be raising $100 million.

Bartlett set up a venture fund called Flight Fund which claims to be raising $100 million.

Dan was curious about the press release about the fund, which asserts that the company "has today announced it has signed a deal to invest" This is very different from having a million-dollar fund ready to invest. 

Jordan agrees and suggests this is 

"... really just an intention at this point, rather than being an actual fund, because there's no money that seems to have been committed, or maybe there has been some committed, but it hasn't got to a level that you can say we've received first commit and whatever else so so you have a situation there where you kind of need to be a little bit wary." 

According to the company's PR team, "Funds will be invested after Flight Fund has its first close, which is currently expected to be in April." The company also fails to specify its LPs. 

Jordan stresses the importance of entrepreneurs doing investor due diligence noting, "other VCs and entrepreneurs can be really useful as you can find out really quickly which VCs are more reputable than others." 

He notes that while warm introductions are rightfully criticised for exclusivity, they provide a reputational endorsement. 

"Because if I'm introducing this company to you, I'm putting my name to the client, and I'm putting my reputation on the line with you by introducing them. And likewise, if you're an entrepreneur saying, "'Meet my VC, I think they did a great job with me' that entrepreneur is putting their reputation on the line." 

Where does this leave us? 

Carbonomy's website has been taken down and no longer appears on Crunchbase.

Numerous publications have deleted their announcement of the funding round or it was deleted by Hedonova

The plagiarised company  — who do good work, and I'll hopefully have the chance to profile for Tech.eu in another capacity  — are left trying to assure customers, investors, and its community that they have nothing to do with this online scam. 

But I can't help thinking this is not the last we'll hear from Hedonova. 

The key lessons for startups

  • Rely on warm introductions. Who's who in your sector? Is this person or company well-known and well-regarded?
  • Question big claims, qualifications and credentials.
  • Get credible, qualified people to read all contracts and carry out due diligence on investors before you sign anything. Who has worked with them? Jordan suggests:

"Before you go and sign a term sheet, you then go and ask around, 'Look, I've been approached by X, and has anybody dealt with them before?'"

And remember, if something sounds too good to be true, it probably is. 

Want to learn more about tech investment, cool startups, and meet top-notch investors? Come to the Tech.eu Summit May 24, 2023 

UPDATE: 23/3/2022

Hedonova has released a statement stating it issued a cease-and-desist to Carbonomy, saying "We can confirm that Carbonomy has complied with this request, having taken down their website as of 9:30 am EST on 16th March 2023." It also states that Cision will remove the press release announcing the funding.

I have reached out to the company's media representative to see if Alexander Cavendish or Suman Banerjee would be available for an on-screen interview to discuss Hedonova's investments and the news reports that bring the company's practices into question.

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