31–40 of 194 posts
This is probably a too-broad-brush use of the word.
Other than that, I like this essay.
People should be taught financial literacy early and accurately. Like learning maths notation: It's useful, compact and efficient. But...it must be precisely grasped/implemented to be of any benefit to speaker or the audience.
Earlier quoted context omitted.
What are the reasons startups can't hire good finance people? Or at least contract with an expert? Is it a difficulty in judging their abilities when it's not your area? Is it something where only at a certain size would it be worth the reduced financial risk to have someone on it? Learning from scratch has to be the slowest, highest risk way of doing it -- which is the exact opposite of what a startup should be opti…
"What are the reasons startups can't hire good finance people?" I think the reason is that you are in stage where the CEO personally empties the rubbish bins in the office, that's why.
Here's the biggest offenders I see when talking to founders: revenue vs GMV (if you give GMV, give me your cut/margin) contract vs LOI burn vs expenses users vs customers (customers pay) signups vs users vs active users (you should give active with time interval and measurement of active. eg. logged in last 30 days) profitable vs cash flow positive Others people should know: diff between retention rate vs churn rate…
IANAL, and Sam mentioned a felony charge. Are there any legal protections for investors (or.... whoever this is protecting) for e.g. misrepresenting "signups vs users vs active users"? Surely that falls under subjective fraud rather than a straight up objective lie, especially for sites e.g. reddit where the line between "active user" and "lurker" is extremely murky. EDIT: Clearly I have no understanding of fraud.
Either way, at least in Brazilian Law (I work with VC in Brazil, but I imagine there is something similiar in USA), we have a "Hidden Liabilities" clause in our termsheet. It says that anything prior to the investors investiment is liable to the founders only.
Here's the biggest offenders I see when talking to founders: revenue vs GMV (if you give GMV, give me your cut/margin) contract vs LOI burn vs expenses users vs customers (customers pay) signups vs users vs active users (you should give active with time interval and measurement of active. eg. logged in last 30 days) profitable vs cash flow positive Others people should know: diff between retention rate vs churn rate…
IANAL, and Sam mentioned a felony charge. Are there any legal protections for investors (or.... whoever this is protecting) for e.g. misrepresenting "signups vs users vs active users"? Surely that falls under subjective fraud rather than a straight up objective lie, especially for sites e.g. reddit where the line between "active user" and "lurker" is extremely murky. EDIT: Clearly I have no understanding of fraud.
I find most people can't name the summery lines of an income statement (Revenue>COGS>gross profit>sg&A>operating profit> etc.) let alone a balance sheet or cash flow statement. but frankly the one annoys me the most is is the way "cash flow" is misused. BTW this comes into play https://en.wikipedia.org/wiki/SEC_Rule_10b-5
There are so many startup accelerators that take a team of engineers / product people and do their best to make businesspeople out of them. I'm one of those CEOs, for sure, and learning about the financial world, accounting, and trying to make sure to not mis-speak was quite difficult. The primary training I received during the accelerator helped a lot, but it was more along the lines of how to more accurately model…
What are the reasons startups can't hire good finance people? Or at least contract with an expert? Is it a difficulty in judging their abilities when it's not your area? Is it something where only at a certain size would it be worth the reduced financial risk to have someone on it? Learning from scratch has to be the slowest, highest risk way of doing it -- which is the exact opposite of what a startup should be opti…
>This is a felony and it’s called fraud, even though it’s usually unintentional. This is incorrect. Fraud requires intent. Otherwise it's just negligence. Should probably throw a legal dictionary in with the financial one.
Strictly speaking, negligence has its own 4-part test (duty, breach, causation, damages). Fraud (intentional misrepresentation made to be relied on by another to their detriment) without intent (or reliance) is simply an unactionable misrepresentation.
>This is a felony and it’s called fraud, even though it’s usually unintentional. This is incorrect. Fraud requires intent. Otherwise it's just negligence. Should probably throw a legal dictionary in with the financial one.
I don't think it's even negligence. When you are a startup, you are not required to file official SEC disclosures or anything of the sort. So you can use whatever you want as your terminology. Having said that, it's a really bad idea to use misleading terminology, because any sophisticated investor will know it and will consider you full of shit anyway
> I can't read a balance sheet or income statement or anything like that. I have to have someone explain it to me, every Board meeting.
http://www.econtalk.org/archives/2014/07/sam_altman_on_s.htm...
>This is a felony and it’s called fraud, even though it’s usually unintentional. This is incorrect. Fraud requires intent. Otherwise it's just negligence. Should probably throw a legal dictionary in with the financial one.
That's a valid point, but if you think about what it's like to raise money, do you really want to be in the position of establishing --- to a prosecutor's satisfaction, since being dragged into court for this is game-over --- that you were unaware of the materiality of these distinctions when you improperly made them to potential investors? From model jury instructions, which might be misleading here: the "intent" a…