Credibility Debt
Jack Luo — 10 min read
This post is inspired by real credit card debt, don’t fuck around with credit cards
I want to talk about credibility debt, which is something that a growing number of Americans have a crippling problem with.
Credibility debt is the gap between the credibility you have borrowed and the credibility your actual work and accomplishments can support. As I navigate through SF ecosystems and around the US, I’ve begun to notice that people borrow credibility from the future through:
- raising money without customer validation
- presenting accelerator acceptance as proof of product quality
- using letters of intent to imply recurring revenue
- receiving pre-idea funding based primarily on prestigious affiliations
- using viral social media posts and attractive ABG CMOs to imply durable demand where none exists
Startups claim that they are projected to reach $100 million in ARR when their actual contract states a real revenue 50 times smaller, or when a Stanford freshman who has barely graduated from high school receives $750,000 pre-idea funding towards their B2B AI SaaS idea because they are rumored by powerful silicon valley folks to be the next Mark Zuckerberg or Steve Jobs. Or companies announcing plans to build hotels on the moon because they believe their success is inevitable.
There has been an unprecedented amount of funding thrown around by investors over the past few years especially to AI companies. The interesting part is that investor returns have also been at an all-time low. So where did all the money go? What happens when a company has borrowed more credibility than its underlying business can repay?
Like financial debt, credibility debt accumulates interest. A startup that calls itself the fastest-growing company in an industry, with a barely working product, must eventually keep producing increasingly impressive claims before reality catches up.
I’ve known Delve since 2024, when it was just three people working out of a dorm room. Due to their connections to MIT and the accelerator program Prod, however, they were able to raise $32 million from Insight Partners and Y Combinator through “institutional credibility.”
In 2025, Delve began to market by sending 10,000 doughnuts to offices around San Francisco, sending FREE doormats to startups through their investment fund, and wrapping dozens of buses around the area. The visibility made Delve appear rather ubiquitous and inevitable and created an expectation that they were going to become the largest company in the world. I have to admit that it was incredible to watch that growth happen in real time.
In March of 2026, the pseudonymous Substack writer DeepDelver published a series of serious allegations about Delve, which alleged that Delve’s compliance-as-a-service system relied on improper or misleading auditing practices. They allegedly used outside compliance firms to both certify and audit the same report, which is a clear violation as auditing should be an independent third party. Mercor used a service called LiteLLM, which did compliance through Delve, and due to the weak security, was involved in a supply-chain attack involving compromised LiteLLM packages. Mercor’s entire eval, models, and data were leaked onto the dark web and sold to bidders in an auction.
The founders initially responded to the allegations in a blog post but their response did not resolve many of the central concerns raised by critics. Delve and Y Combinator later parted ways and stayed quiet afterwards. Regardless of which individual allegations are ultimately substantiated, the controversy exposed how quickly heavily marketed institutional credibility can collapse once customers begin questioning the underlying work.
It’s hard to place all the blame on the founders, even though they’ve done a lot wrong. When a young founder has tied their entire identity to a startup, insecurity can create an intense desire for status. Investors and Silicon Valley culture pressure founders to grow as quickly as possible, encouraging exaggerated signaling and creating ever-higher ARR expectations. With ever-growing, skyrocketing targets, and pressure to outgrow other startups, implosions like this become increasingly predictable.
In Silicon Valley, if you fail, no one will remember you. You only have one shot. If you win, you can get away with anything.
The pressure to succeed at all costs, preached by Silicon Valley investors, is genuinely diabolical, especially when people believed to be the next generation of unicorn founders receive millions, if not tens of millions of dollars despite having no business validation or experience. That is more money than most people will ever see in their entire lives, handed to teenagers with nothing to show for it. What do you expect them to do? How can you expect them to use that money properly when they have no experience in the industry?
There’s a belief in Silicon Valley that dropping out is the ultimate status symbol. Investors look for it. Accelerators love it and might even give you one more interview because of it. But investors benefit from a level of diversification that individual founders do not have.
My favorite analogy is that an accelerator or VC firm is a diamond-mining company. They’re trying to mine diamonds during a speculative diamond rush. You, as a founder building a startup, are a miner whose job is to dig as deeply as possible until you find a diamond for the company. You get a 10% share of any diamond you find, but you’re told that you should specialize in drilling the hole as deep as possible.
Most college dropouts do not have any industry experience and are forced to build in industries where they have no domain expertise (because it sounds good). Because of that, they take far longer to acquire customers and can spend months pivoting through pivot hell. Even if they eventually find success, domain professionals can easily swoop in and and take majority market share
But by then, the miner is already deep underground and bound by the contract: they have already been given equipment to mine diamonds, along with enormous expectations to produce returns from that equipment. If they fail, they may never be given another opportunity to “succeed” again.
So they take desperate measures. They extract a different mineral and pretend that it is a diamond, copy other people’s products and present them as their own breakthroughs, or in the most extreme cases, they defend the delusional belief that they will find a diamond one day, even if that means burning their entire life and cutting off all their friends.
They borrow credibility just to sustain themselves a little longer, without realizing how deep of a hole they have dug until they reach the very end.
Ultimately, a VC fund or accelerator can invest in a hundred companies and survive nearly all of them failing because one enormous winner can repay the entire fund. The founder, meanwhile, may spend years being consumed by a single startup, which can be catastrophic for them as an individual. Even when a miner finds diamonds, investors may receive preferential returns through their ownership and liquidation terms.
From a purely money making perspective, most people would probably be better off as Google software engineers.
So why mine diamonds?
Right now, college students increasingly believe that the job market is terrible, and many of them see a startup as an escape: a way to reach financial freedom, avoid becoming a corporate slave, and never get trapped by golden handcuffs.
It feels sooooo nice!
A startup gives you agency in a labor market filled with automated rejections. Founders can call themselves CEOs instead of begging companies for entry-level interviews. That status is addictive.
I’ve noticed far more founders and influencers leaning heavily on marketing both their founder status and their startup. Ditto rented a “Love Yacht” in Boston and California to promote its dating app. Nozomio gave away $500,000 in DoorDash credits just to market its app. Fourteen-year-old high school students are writing $25,000 angel checks.
It’s so diabolical! Ultimately, what is the point of all of this?
Giving away all this free stuff does not make your business model any better. Having fourteen-year-olds write $25,000 angel checks does not make the ecosystem healthier either.
Building a startup is genuinely difficult. But once you call yourself a founder and begin pulling off increasingly ridiculous stunts to make your startup look as large as possible, it becomes more and more tempting to take shortcuts. You need to one-up the last stunt. You need to go viral again. You need another hit of dopamine. Most importantly, you need to preserve the credibility you have already borrowed.
That is how credibility debt compounds.
Every stunt raises expectations among friends, customers, investors, and the public. Every exaggerated claim creates another promise that the actual business must eventually fulfill. When the company cannot repay those promises with real customers, real revenue, or a working product, the founder must borrow even more credibility to keep the illusion alive for a few more seconds.
During this process, they might give up real-life relationships and sacrifice everything else for an elusive dream that may never have existed in the first place.
One of the most memorable quotes from Dropout Graduation was simply: “Go back to college.”
Far too many people are throwing their entire life savings into the black hole of Silicon Valley. Personally seeing friends go through this makes the warning feel even more real.
For some reason, there is a growing sentiment that 17-year-olds are the next billion-dollar startup founders. I am not saying that young founders cannot succeed, but at the same time, Stripe, Airbnb, and Meta are memorable exceptions.
Some people need to take a step back and realize how statistically unusual these stories are. The average founder age among the fastest-growing startups is actually 45. Most founders behind highly successful companies also graduated from college and accumulated years of experience before building them.
Perhaps it is a good idea to build an amazing foundation before pursuing such a daunting task.
In Silicon Valley, the two outcomes that receive the most attention are the following:
- Spectacular success
- Spectacular fraud
But from my experience most of the startups I’ve encountered fade, plateau, get acquired, or shut down. My sample size is not huge, but I’ve met founders of all backgrounds over the years. I’ve personally gone through the startup building process myself and found it to be one of the hardest endeavors I have ever undertaken. After a year of building and validating, I still don’t have anything big to show for it just yet aside from a launched product.
It is very tempting to borrow credibility and be like, “Hey I’m the CEO, I am doing something great.”
But to be honest there us still so much I’ve not figured out.
It was tempting to just call myself a CEO but that’s where credibility debt begins: when what you say you are starts to outrun what you have actually built. That’s when your reputation begins to be more and more unstable. Building something worthy of the founder title is genuinely much harder than LARPing as a successful founder.
Perhaps it will be far easier to do a startup in the future when you have grown more as a person and accumulated domain experience. You can learn how customers decide what to purchase, how to hire and fire people, how features are scoped and abandoned, and most importantly how to make decisions with incomplete information without resorting to shortcuts.
If you’re a student, graduate, or founder right now, here are a few ideas to consider. As always, these are just my opinion. Take 95% of all startup advice with a grain of salt, including mine.
If you’re still a student, I would just finish the degree unless you’re pulled in by the company through unusually strong customer demand. You can also try working an internship at a startup in the industry that you want to disrupt. Please please please talk to as many customers as you can before raising money. Don’t even raise money if you don’t need to. Treat fundraising as a solid rocket booster. You can only get it once and once you burn it out there is not much more.
If you’re already a founder, talk to more customers rather than overbuilding and ensure that you keep every claim tied to evidence you actually have. Don’t exaggerate. YC recently posted about this on X because everyone is exaggerating too much on the contracted ARR or even annualizing their best month and presenting it as representative ARR. Try not to raise as much money as you think you would need. Raise only what you need to reach the next meaningful proof point. Don’t fucking do 996s (9am to 9pm 6 days a week). Obviously stay focused but have time for other things.
Ultimately life is longer than you think it is. There’s other time to do startups. You don’t have to do a startup now especially when you’re not ready. If you’re doing a startup, try not to get too caught up in the Silicon Valley status battle and focus on solving problems your customers have. That’s all that matters in the end.
Good luck and don’t get into credibility debt, or credit card debt!
Originally published on Medium.