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Financial Misstatements

blog.samaltman.com

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Re: Financial Misstatements

#71

Post by [deleted] »

dudurocha wrote: post #33
duaneb wrote: post #18

Earlier quoted context omitted.

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.

Usually and investor makes a Due Diligence in the company. Depending on the stage of the company, investor profile, this due diligence can be a formal one, where you hire external auditors to make the process or in a more early-stage phase you can do VC firm (or angel) makes the due diligence themselves. Either way, at least in Brazilian Law (I work with VC in Brazil, but I imagine there is something similiar in USA)…

[deleted]

Re: Financial Misstatements

#72

Post by dllthomas »

logicallee wrote: post #44
dllthomas wrote: post #32

Earlier quoted context omitted.

Offloading finance should arguably come before offloading janitorial. You can be thinking about other things while emptying rubbish bins.

you're a company. you're built to make something and grow it. outsourcing financials (I don't mean getting help with them, but actually offloading them) is in some ways like outsourcing development. the "CEO" personally does finances for the same reason the "CTO" personally codes. If either of them can't do something they learn it. Sam is saying: learn these words.

I do want to make a distinction between "offloading" and "outsourcing".

That said, you may very well be correct. My point was simply that, if it's a good idea, it's mostly not for the same reason that has the CEO emptying waste baskets.

Re: Financial Misstatements

#73

Post by w1ntermute »

joshjkim wrote: post #56

Interesting 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)…

> Interesting 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.

Doesn't a16z already do this, not just for finance, but also for PR, hiring, etc.?

Re: Financial Misstatements

#74

Post by duaneb »

MichaelGG wrote: post #57
duaneb wrote: post #18

Earlier quoted context omitted.

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.

Sorry, I more meant it in terms of:

1. What to the investors think the terms mean.

2. What does the service provider think the terms mean.

3. Can the difference between 1 and 2 be construed as a violation of a contract.

4. If 3, is it possible to discern unintentional vs fraud.

I used reddit because it so easily demonstrates the different tiers of the 1% rule[1], except with reddit there are un signed in users, signed in users who don't do anything, only voters, voters and commenters, people who submit, and "power users". I don't know the details now (and reddit has changed a lot), but last I checked they seemed to descend in numbers by about ~10%. This would be a place where you could easily portray a very different ecosystem than reality, intentionally or not, simply by categorizing the users as "active" or not, and how you're characterizing the value you're getting from them.

[1] https://en.wikipedia.org/wiki/1%25_rule_(Internet_culture)

Re: Financial Misstatements

#75

Post by mildbow »

ams6110 wrote: post #54
smacktoward wrote: post #46

This 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.

You mean maybe the accelerator? It would be awesome if YC/the accelerator had a bootcamp of 1-3 days talking about this stuff. Because, let's face it, this "finance stuff" is complicated and most of us don't have a clue: it's not intuitive or something that can be reasoned from first principles. Anyway, are we supposed to build product or become focused on learning all this new jargon(is this fake work?) ? Seems like a lot to duplicated effort if the latter is the case. So, it should make sense for YC to have a short bootcamp.

So why wont they? Because maybe it will open them up for liability? I hope that's wrong because they obviously see the need for such a thing, but are too risk averse(?) to provide value there.

Anyway, why are most of sam's post about how stuff sucks/his disappointment as opposed to: this sucks, and here's how we want to try fixing it? He's running the accelerator and this lack of ownership is really hurting the brand.

Sigh. I'm going to get shadowbanned again. What am I saying that's so disagreeable?

Re: Financial Misstatements

#76

Post by gohrt »

tobyjsullivan wrote: post #53
smacktoward wrote: post #46

This 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…

It's strange that you think that an investor who owns 7% of a company is "being serious" by declining to do any diligence about illegal behavior undertaken by management.

Re: Financial Misstatements

#77

Post by gohrt »

tobyjsullivan wrote: post #53
smacktoward wrote: post #46

This 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…

It's strange that you think that an investor who owns 7% of a company is "being serious" by declining to do any diligence about illegal behavior undertaken by management.

Re: Financial Misstatements

#78

Post by jbenz »

7Figures2Commas wrote: post #62
tptacek wrote: post #11

Earlier quoted context omitted.

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?

If you're choosing between "should I commit a felony or not" should it matter how often other are charged with it? What happens if law enforcement suddenly becomes more interested?

Re: Financial Misstatements

#80

Post by mildbow »

teisman wrote: post #68
exelius wrote: post #52

Earlier quoted context omitted.

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. [0]…

Exactly what I thought too.

Why not have a bootcamp for a few basic finance rules/jargon? Assuming they see the same sort of issues crop up, surely a 1-3 day bootcamp is a lot less "fake work" than every founder now needing to figure out what they need to know and then know it?

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