How Investors Spot Fake Revenue in 5 Minutes!

Acquisition Collective

Most founders have no idea how messy their books really are—until a deal falls apart. In this episode, Kartheek Mulpuri reveals how to spot the red flags that kill acquisitions and shares the financial due diligence playbook that today’s smartest investors use to buy and scale software and service businesses.
From overstated recurring revenue to cash that doesn’t tie out, Karthik walks us through real stories of how quality of earnings (QoE) uncovers hidden risk—and hidden value. Whether you're buying, selling, or just trying to build a cleaner, more sellable business, this conversation is pure gold.
We break down how to:
✅ Catch fake recurring revenue before it costs you 7 figures
✅ Spot the most common financial misstatements in SaaS deals
✅ Structure COGS, gross margin, and opex the right way
✅ Use contract reviews to find hidden deal risks (or upside)
✅ Clean up equity stacks before they scare off investors
✅ Avoid dead equity, bad SAFEs, and misclassified revenue
✅ Think like a strategic buyer—even if you're a founder
If you're an operator, business buyer, or investor—this is a must-watch.
00:00 From VC to Running a Finance Firm for SaaS & Funds
02:00 What “Quality of Earnings” Actually Looks Like
04:30 The 3-Step Playbook for Due Diligence on Software Deals
06:10 The Credit-Based Revenue Trap Most Buyers Miss
08:00 Cash vs. Accrual: The $1M Revenue Overstatement Mistake
10:15 Why Usage-Based Pricing Creates Hidden Risk
13:30 Seasonality, Pricing Models & Revenue Manipulation Tactics
15:45 Cost of Goods Sold: What's In (and What Shouldn't Be)
18:00 The Customer Success Debate: COGS or OpEx?
21:00 How Accrual Accounting Affects Deal Valuation
23:40 Cap Tables, Dead Equity & Founder Negotiations
27:00 SAFE Notes, Convertible Debt, and Investor Power Moves
30:30 When Cash Doesn’t Tie Out—Walk Away
33:00 Inventory Red Flags in E-Commerce and DTC Deals
35:00 Capitalizing vs. Expensing Dev Costs (And When Founders Get It Wrong)
37:45 How One PE Firm Used a 4X Liquidation Preference to Cram Down
40:10 Why E-Commerce Is a Minefield for Non-Experts
43:00 How to Avoid Overpaying in High-Interest Environments
46:00 The Opportunity in “Ugly but Profitable” Online Businesses
48:30 Milking Legacy Software Products for Maximum Cash Flow
50:00 Scaling Pet Grooming? Yes, Really.
52:00 The Most Egregious Financial Fraud Karthik’s Ever Seen
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