Alex Shieh's anti-fraud AI startup turns 'snitching as a service' into a business model

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We have been keeping our next guest waiting for so long. He's been in the re waiting. I'm very sorry. You look fantastic. You did not deserve that. We got lost all over the place. I appreciate the flexibility. Thank you so much for coming on the show. How are you doing? Thank you for having me, guys. I'm doing great.

You look you look great. You sound great. Um we'd love to get an introduction on yourself and the company first and then we can go into the news. Yeah. So I'm Alex Shay. Um and we just launched the anti-fraud company on on Friday.

We raised our $5 million preede and seed round from from Abstract Ventures, Router Capital, and Dune Ventures. Amazing. That's great. Three friends of ours. I hate fraud, so I love this company. Uh uh yeah. What uh explain the the company in one sentence.

Obviously that the the name of the company explains it to some degree, but maybe take it a step further. Yeah. So there's a lot of fraud um that's going on um where private companies are cheating the government by overbilling them or price fixing or having kickbacks of some sort.

And it's our job to use AI and investigative journalism to blow the whistle on on these frauds and recover rewards for the taxpayers, but also for ourselves through whistleblower programs which pay out a percentage of what we end up getting recovered.

What's the story of a fraud that you think you could have prevented maybe from the last 20 years of history? What's the story that you tell is like ah that's the fraud that we should have prevented? Yeah, so that's a great question.

Um, so this is something that my co-founder Sah Sharda has been working on um, for a while now. He's the author of the book The College Cartel. Um, and this tells the story of how Ivy League universities are rigging the game by price fixing the financial aid that is sent out to needy students.

Um, and and the government pays for financial aid um, by by through PellGrants and through scholarships. Um, and this ended up being a multi-million dollar lawsuit where hundreds of millions of dollars in settlements were paid out to um, students who were who were who were scammed by these Ivy League schools.

Um, and so this is something that we've done on in the past. But the Government Accountability Office estimates that it's on the order of magnitude of about $500 billion every year um, is is just going to fraud.

Um, so we think that that's a that's a huge TAM for us to to be exploring and playing around with to find like this. Such an unhinged and insane and awesome company. Uh, I'm very glad. It's also funny Brower's in cuz do not pay feels very adjacent. Like he's definitely like this is just gets him going in my opinion.

I imagine you guys why he was into it. What uh what kind of uh actors out there in the world do you think saw your launch video and uh shivered uh with fear? They're like, "Oh, I I hope we're scaring all all the corporate fraudsters out there. " But, uh, right now we're going after big pharma in particular.

Our other co-founder, um, David Barklay, he was at the FTC in the Biden administration under Lena Khan, who by the way, yeah, you guys got you got you got a quote from Lena Lena quote tweeted. Quote tweeted. That's right. She said she said it was an incredibly important project.

And I think that's right because at the FDC what what David was involved with was um really uh ensuring that generic inhalers could enter the market that um that the proprietary that that the big pharma companies couldn't block um generic inhalers from entering the market which is really pivotal in in lowering the price of inhalers for Americans.

Um but healthcare that's about 20% of GDP is just healthcare which sounds insane when you say it but it's true. and and we believe that this is going to be our first vertical before we expand into into other places like education and defense where there's a whole bunch of fraud there too.

Th this feels like not that uh dissimilar from Crosby that we talked about earlier where it's like it it is in some ways you're a firm that's actually doing investigative journalism or fighting individual cases. It's not purely a software that you're selling to someone else.

Um I you're still a little bit early to be getting the question from VCs of like Moes and how this becomes a platform, but do you imagine this becomes autonomous or is this um more like anti-fraud agents internally that are enable forward deployed anti-fraud journalists who are going around enabled by your tools or do you see it as more of like an autonomous system that will look a lot more like a SAS company?

Yeah. I So, we're definitely not um a SAS company um in in the in the conventional sense, software as a service. We we have a different acronym SAS that we like to use is is snitching as a service because we we because we only get money here when when we blow the whistle and and the government um gets a recovery.

Um, so as as opposed to sort of SAS business, normal SAS businesses where they where they are reliant on subscription fees and licensing and and software licenses, um, we only get get money ourselves when we drive value that can be measured in real dollars um, to the government.

So we think that's a that's a win-win play here. Um, before founding this company, I worked at Palunteer, so I'm very familiar with the the forward deployed model. Um and that's that's totally what we're going for here is is we have a team of journalists and AI engineers um working together on on these cases.

Um we hope to um automate it more um with with sort of the the advent of LLMs which are turning out to be really useful in the process of sifting through all this unstructured text data that you know exists with government filings and contracts and this stuff.

Um, and we really hope that this is a better business model for investigative journalism, too, because you know, back in the day, um, that you had these local newspaper powerhouses, but the newspaper industry is dying, and we think that this might be, um, a good way to revive this very important industry for our democracy.

The chat absolutely loves you. Yeah, everyone loves you. Last question for me.

Oh, you got I I I was wondering are a lot of these things like effectively open secrets that there's fraudulent activity happening in different categories and that there's not an incentive necessarily like maybe the the newspaper that would have written about it back in the old days just doesn't have the staff to pursue the story or there's not interest from somebody to do it.

uh how much of this is open secrets and then you guys just need to dig in a little bit to start uncovering some of the uh the dirty laundry.

Yeah, there is a lot of lowhanging fruit um here and I mean you're right is that the newspaper business model again is getting flipped on its head um with the advent of the internet.

They're very reliant on um ad dollars and again newspapers do good stuff like they blew the whistle on theos for example that was the Wall Street Journal I believe John at the Wall Street Journal correct but the the business model for um investigative journalism is is not great as it stands advertising dollars because you can make content that's equally engaging for a fraction of the cost.

So we really believe that the value in it is that it allows the government to get a recovery. So we think that this is a better business model when it comes to that it's better it's more rewarding for the journalists as well.

I used to work for the Boston Globe as well and I can say that journalism you know you don't get well paid. Um this is this is this is uh an avenue also for journalists to monetize their their uh work and be handsomely compensated. I've always felt that uh that uh journalists should be paid way more.

Uh but there was no economic like there wasn't economic and social media has has uh like kind of unbundled a lot of journalism but uh the the folks that uh that have been the biggest beneficiaries of that are folks like us where we're commentators. We're not investigative journalists.

and Substack hasn't fully uh has certainly um created a ton of new opportunity for independent analysts and writers and thought leaders and all sorts of different pieces of the journalistic pie. But the true investigative journalism is is a very tough thing to solve.

and some journalistic investigative journalist stories like Theronos hit so hard because Elizabeth Holmes was extremely charismatic and had done all these interviews and was on the cover of magazines and everyone can imagine getting their finger pricricked and giving blood and so you could easily turn it into a you know a story into a book into a movie into a TV series like that's monetizable.

If it's just like there's some paperwork from some anonymous organization that's taking a little bit of money out of a bunch of pensions. There's no clear victim. It's going to be a lot a lot harder to tell a big story and it's a lot going to be a lot harder to monetize that with like a movie deal.

So, uh you seem like the the solution to this potentially. It's very exciting. We have one last question from the chat. You went to Brown, correct? That is correct. So, the chat has a has a habit of asking anyone who goes to Brown, do you miss the ratty dining hall? We asked Dylan Field this. He said no.

What do you think? Do I miss the ratty? No. It's it's not that great. Um they're they're they're cutting corners these days. um that that in my brown days before um before this, I'm the one who launched the uh investigation about what they were doing with their finances. I testified before Congress about their finances.

Um they're cutting a lot of corners there. It's it's probably not worth what you're paying in tuition. We're two for two on on thumbs down on the ratty dining hall, but uh Brown is Brown is really hoping that you don't turn your focus that you don't get too reinterested in your alma moater.

Yeah, they're probably not calling you for donations, but uh they certainly turn out a lot of great entrepreneurs that we've enjoyed talking to on the show and we've en enjoyed talking to you. Come on. When you when you when you uh when you do your first, you know, blockbuster snitch, come on the show and talk about it.

Yeah, tell the story. We'd love to or send the investigative journalist on your team who did it. That'd be great. Yeah, for sure. Thank you. Well, have a great rest of your day. We will talk to you soon. Have a great day.