I like Sam, and I even agree with him in this post. However, I don't think everything he blogs about needs to shoot straight to the number one spot on HN. I'm not sure if this is the community's voting or the YC algorithm's bias, but it would benefit the community if we could stop the fawning and treat his posts like we would anyone else's.
Financial Misstatements
61–70 of 194 posts
Re: Financial Misstatements
#62> Although investors should be doing more diligence than is currently in fashion, this issue is on the founders to fix. What incentive do founders have to "fix" this when investors aren't doing adequate due diligence?
The fact that they can be prosecuted for it.
How many Silicon Valley startup founders have faced felony charges for making financial misrepresentations in recent years?
Re: Financial Misstatements
#63This 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…
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Re: Financial Misstatements
#64There 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…
You can hire a part-time accountant. When big enough, you'll hire a full-time CFO, but that person will have an eye on a personal return via merger or IPO. As a small startup, it is absolutely the CEO's job to live and breathe financials, in terms of where money comes in and goes out. Outsourcing that role is a major red flag.
Re: Financial Misstatements
#65A voice recognition company was in the process of IPO in the mid 1990s. They had some big purchase orders from institutional customers. The trouble was, those POs had side letters giving the customers the right to return the products for credit if they didn't work correctly.
Not disclosing those side agreements to investors was treated as felony securities fraud. It made the company seem more valuable than it really was.
That's the whole dealio. Don't cook the books. Don't make stuff up. There's enough that can go wrong even if you are transparent with investors about your deals.
Re: Financial Misstatements
#66Earlier 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?
Ignorance of the law is no defense to criminal charges. But law might also specifically entail intent. For instance, this is the difference between first and second degree murder.
IANAL and I have no knowledge of the business/financial/contract end of things. I do know I've signed quite a few "due diligence" and "reasonable effort" clauses. I don't know how legally defensible they are in situations like user reporting when it's not specified.
Re: Financial Misstatements
#67Earlier 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?
The concept of mens rea[0] touches on this. One of its applications is that ignorance is not an excuse for being culpable. All of this is not to say that lack of intent makes someone blameless, only that it is not fraud without intent.
Re: Financial Misstatements
#68This 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 illega…
It is interesting how this blog-post directly follows the "The Post-YC Slump" post [0]. One can easily make the mistake of considering time spent on financial statements "fake work", fake work being identified as one of the reasons for the slump.
The fact that there are financial misstatements indicates that there is more need for this type fake work, or perhaps the whole fake work thing isn't so fake after all.
Re: Financial Misstatements
#69This 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.
Like... YC?
Re: Financial Misstatements
#70Interesting 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)…
Not such a great idea, in my opinion.
There are honest and competent people willing to work one day a week as contract CFO. Such a person works as part of the management team and doesn't have divided loyalty (management / investors).