Case study · Due Diligence
Revenue Borrowed from Next Year
Ahead of a growth round, a consumer brand's revenue was inflated through related distributors, bill-and-hold sales and money sent round in a circle.
- Financial statement manipulation
- Fake sales & channel stuffing
- Investor & lender misrepresentation
- Fund siphoning & round-tripping
- revenue not genuine
- ~22%revenue not genuine
- valuation adjustment
- US$8–12Mvaluation adjustment
- inside the deal timetable
- 5 wksinside the deal timetable
- round with governance conditions
- Repricedround with governance conditions
01The situation
The growth was real on the slide. Some of it was paid for by the founder.
A fast-growing consumer brand was raising a growth round. Its numbers looked strong, but receivables were rising faster than sales and a few distributors accounted for a growing share.
How it came to us
A private equity investor wanted forensic comfort on revenue quality before signing.
02How it worked
- 01Several new 'distributors' were controlled by people close to the founders.
- 02Sales to them were booked at quarter-end with goods held in the company's own warehouses.
- 03Payments for those sales were funded by money routed from the founders through intermediaries.
- 04Marketing support paid to the same distributors flowed back as 'collections'.
- 05Returns were deferred until after the planned closing.
Swipe sideways to see the whole diagram.
- Insiders involved
- Outside parties
- The organisation
- Where the money ended up
- Repeats / feeds back
How it was hidden
Distributors with no obvious link to the founders, goods held at company warehouses as 'bill and hold', and collections that looked like normal receipts.
03The challenge
Test revenue quality and related-party exposure inside a deal timetable, without access to the brand's distributors.
What made it hard
- Deal timetable
- No direct access to distributors
- Mixed sales channels
- Need to give the investor a usable number
Red flags that were there to see
- Receivables rising faster than sales
- New distributors taking a large share
- Quarter-end concentration
- Marketing support flowing to the same distributors
04Our approach
- Workstream 01
Revenue quality analytics
Sales, collections and returns by customer and period.
- Workstream 02
Related-party discovery
Ownership and control behind the largest distributors.
- Workstream 03
Cash circularity review
Sources of collections from the key distributors.
- Workstream 04
Warehouse and stock checks
Where 'sold' goods actually sat.
The breakthrough
Related-party discovery tied the fastest-growing distributors to the founders' circle, and the sources of their payments led back to founder-linked funds, showing part of the revenue was paid for by the company's own side.
05What we found & did
- About a fifth of reported revenue came from founder-linked distributors.
- Bill-and-hold sales with goods still in company warehouses.
- Distributor collections were funded through money routed from the founders.
- The online channel's revenue was clean.
06The impact
The investor repriced the round, required restatement and governance changes as conditions, and replaced part of the primary investment with milestone-linked tranches.
- revenue not genuine
- ~22%revenue not genuine
- valuation adjustment
- US$8–12Mvaluation adjustment
- inside the deal timetable
- 5 wksinside the deal timetable
- round with governance conditions
- Repricedround with governance conditions
07Lessons for your business
The controls that would have stopped this, or caught it sooner:
- Test revenue quality, not just revenue, before investing.
- Look behind the largest new customers.
- Follow the source of collections.
- Tie investment tranches to verified milestones.
~₹5 Crundue benefit quantified
The CEO's Three Vendors
A subsidiary CEO routed a rural retail rollout through vendors fronted by his own associates. The money trail led back to him.
- Procurement reconstruction
- Corporate and statutory records
- Ground intelligence
- Funds-flow tracing
US$4.7M+diversion traced to the founder
Zero Skin in the Game
An investor funded a road-construction contractor. Within months, the founder's own contribution had quietly gone to zero and the diversion had begun.
- Records digitisation
- Funds-flow reconstruction
- Personal wealth analysis
- Corporate and property records
~1Memails and documents reviewed
The Fortune That Wasn't There
Shareholders suspected their managing director of hiding a fortune. On the data available, the money trail did not support that suspicion, and it surfaced employee frauds instead.
- Digital forensics
- Source and application of funds
- Related-party mapping
- Market intelligence
Client names and identifying details are withheld to protect confidentiality. Specific references and client experiences can be shared on request, with the client’s consent.
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