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Financial Misstatements

blog.samaltman.com

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81–90 of 194 posts

Re: Financial Misstatements

#81

Post by mathattack »

I've seen this is in many businesses. The biggest offense is gross vs net revenue. "Oh, we're an X million revenue firm" is frequently tossed out, when the company only keeps 15% of that to pay the bills. This is especially prevalent in AdTech. I used to think this was lack of financial knowledge on the part of the founders. Lately I've started thinking it's deliberate.

I see Virtual being an example of this too, though not in AdTech.

Some of this does fall on the VCs. It's very important for the VCs to dig into financials before investing, and asking for precise definitions. It also highlights the need for professional financial talent in startups.

Re: Financial Misstatements

#82

Post by mathattack »

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)…

I've seen early stage VCs suggest hiring temp CFOs (though it didn't pan out for Virtual - highlighting that the onus is still on the CEO) and late stage VCs saying, "We'll give you $25 million, but we hire the CFO"

Re: Financial Misstatements

#83

Post by zaidf »

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…

By your logic, Harvard should be to blame for the millionaires and billionaires from Harvard that are in prison for insider trading.

Re: Financial Misstatements

#84

Post by LandoCalrissian »

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…

The average age of founders in YC startups is 29, that's not really straight out of college. I think you might actually have misconceptions of what YC does. It's not a school for sure.

Re: Financial Misstatements

#85

Post by tkiley »

I agree with Sam's message, but I sympathize with founders who make mistakes here.

Founders are told to hustle, to aggressively push themselves and their visions in order to build momentum for their businesses. Founders are encouraged to bend - if not break - the rules in order to get things done.

First-time founders are thrown into the world of finance with a good deal of ignorance about the meanings and conventions of specific financial terms, combined with a culturally ingrained bias towards spinning things as positively as possible. Broadly speaking, this seems like a recipe for disaster.

Re: Financial Misstatements

#86

Post by dang »

gohrt wrote: post #76
tobyjsullivan wrote: post #53

Earlier quoted context omitted.

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.

You have no basis for that statement.

Re: Financial Misstatements

#88

Post by clairity »

this is where having an MBA (or undergrad business degree) can be helpful. note, i'm not saying you need a business degree to be a founder, just that it can help if you already have it. =)

in business school, you learn that much of finance & accounting is storytelling with numbers, but with the added twist that there are legal consequences for crossing over (and sometimes, just into) the gray area. that's what sam is pointing out, where the gray area ends and the legal consequences start.

as others have pointed out, quantitative finance & accounting classes can be very helpful:

  * financial accounting
  * managerial accounting
  * financial markets
  * investment finance
  * corporate valuation
  * entrepreneurial finance

Re: Financial Misstatements

#89

Post by bengali3 »

jbverschoor wrote: post #42

And walking away from a handshake deal is breach of contract.

but only if the contract period was for less than 1 year, iirc. and also the issue of authority-to-bind comes into play as well..

for protection from a verbal deal going bad, see also: https://en.wikipedia.org/wiki/Estoppel#Promissory_estoppel_2

Re: Financial Misstatements

#90

Post by someear »

tkiley wrote: post #85

I agree with Sam's message, but I sympathize with founders who make mistakes here. Founders are told to hustle, to aggressively push themselves and their visions in order to build momentum for their businesses. Founders are encouraged to bend - if not break - the rules in order to get things done. First-time founders are thrown into the world of finance with a good deal of ignorance about the meanings and conventions…

Sell and outsell your vision, dreams, and potential, not the facts.
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