How to Make Billions from Exposing Fraud | E2234
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of This Week in Startups features two fascinating segments. First, Jason and Alex revisit a 2016 interview with Blake Scholl, founder of Boom Supersonic, examining his early vision to bring back supersonic passenger flight. (02:18) Blake explains why the Concorde failed—primarily due to economic inefficiency with $20,000 tickets and only 100 seats—and how modern technology could make supersonic travel viable again. The second segment introduces Alex Shieh of The Anti-Fraud Company, who has created an innovative business model using AI and investigative journalism to uncover government fraud and collect bounties through the False Claims Act. (33:57) The episode concludes with a Q&A session from Founder University Tokyo, where Jason provides recruiting advice to Japanese startups.
- Main themes include the application of startup methodologies to complex physical problems, the intersection of technology and regulatory frameworks, and innovative business models that align private incentives with public good.
Speakers
Jason Calacanis
Jason is the host of This Week in Startups and founder of Launch. He's an angel investor and entrepreneur who has invested in companies like Uber, Robinhood, and Thumbtack. He previously founded Weblogs Inc., which was acquired by AOL, and is known for his expertise in early-stage investing and startup strategy.
Blake Scholl
Blake is the founder and CEO of Boom Supersonic, a company working to bring back supersonic passenger flight. He previously sold his first startup to Groupon and spent time there before founding Boom. He's a licensed pilot with a passion for aviation and has raised over $700 million to date for his supersonic aircraft venture.
Alex Shieh
Alex is the founder of The Anti-Fraud Company, a unique startup that uses AI and investigative journalism to uncover government fraud and collect bounties under the False Claims Act. He previously worked at Palantir and gained attention for investigating wasteful practices at Brown University, even testifying before Congress about higher education fraud.
Key Takeaways
Apply Startup Methodology to Complex Physical Problems
Blake Scholl demonstrates how traditional startup approaches can work in capital-intensive industries. (16:16) Instead of trying to build the full supersonic passenger jet immediately, Boom took an iterative approach by first building a subscale prototype that would fly at Mach 2.2 and set speed records. This sequential development allowed them to prove the technology while managing capital efficiently. The key insight is that even in industries requiring massive capital, you can still apply lean startup principles by breaking down the problem into smaller, testable components that build toward your ultimate vision.
The 30% Efficiency Rule Transforms Unit Economics
Boom's entire business model hinges on achieving just 30% better fuel efficiency than the Concorde. (08:29) Blake explained that this seemingly modest improvement would allow supersonic seats to cost the same as business class lay-flat seats today—around $5,000 round trip from New York to London. This demonstrates how small technological improvements can create massive market opportunities when they cross critical economic thresholds. The lesson for entrepreneurs is to identify the specific efficiency gains or cost reductions that would fundamentally change your market dynamics.
Leverage Obscure Legal Frameworks for Business Innovation
Alex Shieh built The Anti-Fraud Company around the False Claims Act, a Civil War-era law that allows whistleblowers to collect 15-30% of recovered fraud. (36:25) This shows how entrepreneurs can find untapped opportunities in existing legal or regulatory frameworks. By applying modern technology (AI and data analytics) to this old law, Shieh created a scalable business model that aligns private incentives with public good. Entrepreneurs should look for similar regulatory arbitrage opportunities where technology can unlock value from existing but underutilized legal structures.
Use AI as an Information Processing Multiplier
The Anti-Fraud Company demonstrates how AI can transform investigative work by processing vast amounts of government data and documents to identify fraud patterns. (48:48) Alex explained they use LLMs to analyze textual data and structured data analysis for government databases, essentially putting "the entire government into NotebookLM to find fraud." This approach shows how AI can serve as a force multiplier for complex analytical tasks that previously required armies of investigators. The key is identifying domains where pattern recognition and data processing are bottlenecks to value creation.
Build Teams Through Mission-Driven Recruiting
Blake Scholl's approach to building Boom's early team involved asking aerospace experts who they would want to work with if they had a "magic wand." (29:58) He then brought together multiple top candidates for a multi-day technical discussion to assess both their capabilities and cultural fit. For early-stage companies that can't compete on salary, the lesson is to recruit based on mission alignment and the opportunity to work on previously impossible problems. This is especially effective when targeting experienced professionals who have already achieved financial success and are motivated by impact rather than compensation.
Statistics & Facts
- The Concorde cost $20,000 per ticket and had only 100 seats, making it economically unsustainable. (02:51) Blake Scholl explained this fundamental unit economics problem was why supersonic flight "never changed the world" despite the technology existing.
- The Government Accountability Office estimates $500 billion in annual government fraud, while Elon Musk estimates it could be as high as $1.5 trillion out of a $7 trillion federal budget. (39:12) Alex Shieh noted that current False Claims Act recoveries are only around $4 million annually, suggesting massive untapped opportunity.
- Brown University costs $90,000 per year and receives approximately $500 million annually in federal funding, with roughly 4,000 administrators compared to 2,000 professors. (41:00) This statistic helped illustrate the scale of potential waste in higher education that Alex Shieh investigated.
