Financial Misstatements
51–60 of 194 posts
Re: Financial Misstatements
#52This post leaves a bad taste in my mouth, at least to the degree it's talking about executives of YC companies. I mean, the whole model of YC is to take kids straight out of college (if not before) and turn them into startup CEOs. If those CEOs come out of that process not understanding the legal obligations of their new position, whose fault is that, exactly? It's not like they're bringing decades of business experi…
It's not YC's job to teach executives anything. Their entire model is self-service: they give founders access to people who know this stuff, but you have to ask for help to receive it. At the same time, a lot of these founders don't know what they don't know, so IMO this blog post is a way of saying to current and prospective founders "Hey, you need to be careful about this because creative accounting is often illegal". The startup mindset is to find creative solutions to problems, but that doesn't work in finance/accounting.
> I mean, the whole model of YC is to take kids straight out of college
Isn't the average age of YC founders closer to 30?
Re: Financial Misstatements
#53This post leaves a bad taste in my mouth, at least to the degree it's talking about executives of YC companies. I mean, the whole model of YC is to take kids straight out of college (if not before) and turn them into startup CEOs. If those CEOs come out of that process not understanding the legal obligations of their new position, whose fault is that, exactly? It's not like they're bringing decades of business experi…
My impression of YC has never been that it is some hand-holding after school special. This is an investment firm in the world of business and the world of business is very serious. As a startup founder, you are treated as an adult and that includes both the freedoms and responsibilities implied.
That said, you may have a point here. If there is a recurring issue that some founders are too immature for their own good and might be a risk to their own personal safety (e.g., committing felonies out of pure ignorance), YC should probably be intentional about filtering those people out during applications. But this article isn't just about YC candidates and that's not a solution for the whole industry.
Re: Financial Misstatements
#54This post leaves a bad taste in my mouth, at least to the degree it's talking about executives of YC companies. I mean, the whole model of YC is to take kids straight out of college (if not before) and turn them into startup CEOs. If those CEOs come out of that process not understanding the legal obligations of their new position, whose fault is that, exactly? It's not like they're bringing decades of business experi…
At what point do people start acting like grown-ups who take the time to learn what responsibilities come with their actions?
I think college graduates certainly qualify. If I'm going to call myself "CEO" then I better damn well figure out what that means, and if I don't know, I should study or seek the advice of someone who does.
Re: Financial Misstatements
#55There 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…
> What are the reasons startups can't hire good finance people?
Perhaps there is a correlation between being a good finance person and not overlooking the risk associated with working for a startup, such that good finance people -- who command high salaries anywhere -- aren't particularly attracted to work at startups, making it even more expensive for startups to hire them than it would be for others to do so.
Re: Financial Misstatements
#56Interesting idea: VCs should have in-house finance folks specifically meant to work with portfolio companies who spent a few days a month for year 1 after investment, or until the company gets it own finance team. Most VCs do less than 10-15 deals a year, so this seems tolerable and a relatively low cost way of to really know what's going on with the portfolio. (I know some VCs already kind of do this (Vantage Point). Also, harder for YC, given # of investments, so maybe not as applicable for true seed funds but still might be worth it - I'm sure they could get 5 mid-career CPAs for the price of one partner, and they would love the job! I think)
The fun part is that then the VCs will have a direct line into the company's nitty-gritty operations, which really they are entitled to receive anyhow (though usually they just take the board deck at its word..which is not always good).
This might suck for the company since you have the VC in-the-know on your nitty-gritty (though I'd argue that if you don't want them in-the-know, you should not have taken their $$...though I understand it's more complicated than that haha), BUT that might also serve to incentivize the company to build out the finance team quickly, and also give the management team a taste of what a good finance person can provide (assuming the person the VC provides is good, which they should be if they are to be trusted with multiple portfolio companies).
Re: Financial Misstatements
#57Here'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.
Really? Seems like that line is easily defined with a sentence or two.
Re: Financial Misstatements
#58Can someone clarify the difference? Using Uber as an example: their GMV is the sum of all fares, whereas revenue is the 10% they take off that number—is this correct?
Re: Financial Misstatements
#59It's pretty amusing to see this post coming from a guy who's publicly stated: > 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...
There's no hypocrisy there. He's probably had to personally be super-cautious about opening his mouth about things like this.
Re: Financial Misstatements
#60Earlier quoted context omitted.
Your point stands, and this is a nit, but... Fraud, by legal definition, must be intentional. It is a deliberate attempt to mislead.
Is there a concept in law as "you should have known"? Like, its one thing to not know that the thing you are saying isn't true (i.e. "my co-founder went to Yale" when he actually believes that he did). But another to not know the definitions of words you are using when you should know that? Can you say "I have a million dollars in the bank" when you honestly believe "a million" = 1000?
Yes it's probably the line between just being liable for damages vs. going to jail.