Too much power in one founder can be a dangerous thing.

Manish Lachwani, the cofounder and former CEO of app testing startup HeadSpin, turned his company into a unicorn over the course of roughly five years and won the backing of investors including Tiger Global, GV, and ICONIQ Capital. But the Department of Justice on Wednesday alleged that the CEO overstated key financial metrics to boost the company’s valuation, inflating HeadSpin’s annual recurring revenue by $51 million to $55 million to investors, per the complaint.

It was when an employee whistleblower raised concerns to members of HeadSpin’s board in 2020 that the house of cards began to crumble, the complaint read: The board formed a committee to audit the business and found that not only did the company boost its revenue figure, it also falsely claimed to have reached profitability, according to the audit as seen by the DoJ. The company had totalled revenues of $26.3 million from its inception through the first quarter of 2020 compared to the $95.3 million it had claimed, while losses totalled about $15.9 million compared to the $3.7 million in net income it claimed in the same period.

Lachwani resigned shortly thereafter, and returned some funds to investors. The process, according to the complaint, slashed HeadSpin’s valuation from $1.1 billion to about $300 million.

On Wednesday, Lachwani was arrested on charges of securities fraud and wire fraud. If convicted of wire fraud, he could face a maximum sentence of 20 years in prison and a $250,000 fine. If convicted of securities fraud, he also faces a maximum sentence of 20 years, though with a fine of $5,000,000. The Securities and Exchange Commission also filed related civil charges, alleging Lachwani defrauded investors out of $80 million.

Throughout the complaint, there was one recurring theme: Though HeadSpin had matured into a unicorn, a company worth over a billion dollars, the document laying out the allegations of fraud repeatedly pointed to the amount of power Lachwani held over key aspects of the organization. Without a full-time financial professional, it was Lachwani who decided when and how sales would be recorded, according to the complaint. And even as employees pointed out red flags, Lachwani charged ahead and would at times provide falsified invoices, the DoJ alleged. When a senior manager sought to standardize the company’s corporate practices, Lachwani resisted the changes, per the complaint. 

“Lachwani siloed information, including financial figures, sales and customer information, and routinely restricted employees from speaking with each other or customers about the company’s finances,” the complaint alleged. He was “the final decision maker regarding when, how, and whether the company would record sales and revenue.”

Unfortunately this had a ripple effect as the three unnamed investors the DoJ profiled used Lachwani’s self-reported annual recurring revenue figure as a measure of the company’s success, according to the complaint.

While Lachwani has simply been charged rather than convicted, in this heady moment in venture capital funding, it also serves as a reminder that due diligence is imperfect and that putting too much trust and power in a single founder is not always a good thing.

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com

VENTURE DEALS

- Shield AI, a San Diego, Calif.-based defense tech company, raised $210 million. Disruptive led the round and was joined by investors including Point72 Ventures.

- Atheneum, a Berlin-founded survey platform for companies, raised $150 million in funding. Guidepost Growth Equity led the round and was joined by investors including Crosslantic Capital Management, Michael Brehm, and Vogel Communications Group.

- Picsart, a San Francisco-based platform for creating raised graphics, raised $130 million in Series C funding. Softbank Vision Fund 2 led the round and was joined by investors including GSquared, Tribe Capital, Sequoia, DCM, Graph, and Siguler Guff. It values the company above $1 billion.

- Calibrate, a New York City-based, obesity-focused, telehealth platform, raised $100 million. Brian Singerman at Founders Fund and Tiger Global led the round and were joined by investors including Optum Ventures, Forerunner Ventures, Threshold Ventures, and Redesign Health.

- Jane Technologies, a Santa Cruz, Calif.-based maker of an online cannabis marketplace, raised $100 million in Series C funding. Honor Ventures led the round and was joined by investors including Third Point Ventures, Gotham Green Partners, L2 Ventures, Delta Emerald Ventures, and Artemis Growth Partners.

- Cardior Pharmaceuticals, a German biotech focused on cardiac diseases, raised €64 million ($76 million) in Series B funding. Inkef Capital led the round and was joined by investors including Fund+, Sunstone, Hadean Ventures, and Coparion.

- Leapwork, a Danish no-code automation company, raised $62 million. KKR and Salesforce Ventures led the round and were joined by investors including DN Capital and Headline.

- Flink, a Mexico-based banking startup, raised $57 million in Series B funding. Lightspeed Venture Partners led the round. Accel, ALLVP, Clocktower, and Mantis Venture Capital also invested.

- Aumni, a Salt Lake City-based investment analytics platform, raised $50 million in Series B funding. J.P. Morgan led the round and was joined by investors including Pelion Venture Partners, WndrCo, Citadel Securities, Invesco Private Capital, Vanderbilt University, and Kera Capital. 

- Workstream, a San Francisco-based recruitment company, raised $48 million in Series B funding. BOND and Coatue led the round.

- Stable, a Chicago-based insurtech focused on price risk management, raised $46.5 million in Series A funding. Greycroft led the round and was joined by investors including  Notion Capital, Anthemis, Continental Grain, Syngenta, and Ascot. 

- elopage, a Berlin-based payments company, raised $38 million (€32 million) in Series A funding. Target Global and Partech Ventures led the round and were joined by investors including Avid Ventures.

- Balance, a San Francisco-based business-to-business-focused payments company, raised $25 million in Series A funding. Ribbit Capital led the round and was joined by investors including Avid Ventures, Lightspeed Ventures, Stripe, Y Combinator Continuity Fund, SciFi VC, UpWest, and Jaqueline Reses (formerly Head of Square Capital).

- Oomnitza, a San Francisco-based enterprise tech startup, raised $20 million. C5 Capital led the round and was joined by investors including Aspenwood Ventures, Gula Tech Adventures, Riverside Acceleration Capital, and Shasta Ventures.

- involve.ai, a Los Angeles-based customer analysis platform, raised $16 million in Series A funding. Sapphire Ventures led the round and was joined by investors including Bonfire Ventures, Greycroft, Launch Capital, BDMI, GTMfund, Fenwick, Gokul Rajaram, Stanford University, and Michael Whitmire.

- MaxAB, an Egyptian e-commerce tech provider, raised an additional $15 million. Existing investors RMBV, IFC, Flourish Ventures, Crystal Stream Capital, Rise Capital, Endeavour Catalyst, Beco Capital, and 4DX Ventures invested.

- Bodo.ai, a San Francisco-based startup focused on data workloads, raised $14 million in Series A funding. Dell Technologies Capital led the round and was joined by investors including Uncorrelated Ventures, Fusion Fund, and Candou Ventures.

- Antidote Health, a New York City-based telehealth provider, raised $12 million in seed funding. Investors included iAngels, Well-Tech Ventures, and Flint Capital.

- BreachQuest, a Dallas-based cybersecurity startup, raised $4.4 million in seed funding. Investors included Slow Ventures.

- Forward Kitchens, a San Francisco-based restaurant tech startup, raised $2.5 million in seed funding. Investors include Y Combinator, Floodgate, Slow Ventures, and SV Angel.

- Fig, a startup seeking to replace the command line terminal, raised $2.2 million in seed funding. General Catalyst led the round and was joined by investors including YC and SV Angel.

- Lytica, a Canadian electronic component spend analytics company, raised $1.5 million in equity. York IE led the round. 

PRIVATE EQUITY

- Apollo Global Management will invest $150 million in FlexGen Power Systems, a Durham, N.C.-based provider of services and software to energy storage companies. 

- AI Beauty Holdings, a company formed by Advent International, will acquire bareMinerals, BUXOM, and Laura Mercier, beauty brands, from Shiseido Americas. Financial terms weren't disclosed.

- Auxo Investment Partners acquired Altus Industries, a  Grand Rapids, Mich.-based supplier of hospital workstations. Financial terms weren't disclosed.

- Hg acquired a majority stake in Riskalyze, a wealth management platform. Financial terms weren't disclosed.

EXIT

- Point Pickup Technologies acquired GrocerKey, a Madison, Wis.-based grocery tech company backed by investors such as ComeBack Capital, for $42 million.

- Roofstock acquired Great Jones, a property management platform. Investors including Crosslink Capital and Juxtapose backed Great Jones. Financial terms weren't disclosed.

OTHER

- Axel Springer will acquire Politico, the politics news site, for about $1 billion, per CNBC.

IPOS

- Nubank, a Brazilian neobank backed by Berkshire Hathaway, plans to IPO in the U.S., per Reuters.

SPAC

- Forbes, a New York City-based media company, will go public via merger with Magnum Opus Acquisition, a SPAC. A deal values the duo at $630 million, 

- Getaround, a car-sharing startup, is in talks to go public via merger with Altitude Acquisition, per Reuters.

F+FS

- Commonfund Capital, a Wilton, Ct.-based private equity investor, raised $160 million for its Commonfund Capital Co-investment Opportunities III.

- Prime Venture Partners, an Indian early-stage investor, raised $100 million for its fourth fund.