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Startups can play fast and loose with the financial information they disclose publicly, in large part because private companies don’t have the same disclosure requirements that publicly traded companies do.
Some do it to make their company look impressive to journalists and investors who aren’t asking the right questions. Others simply don’t know better. So venture capital firm Andreessen Horowitz compiled a list of 16 startup metrics that it thinks either matter the most or are often confused, whether intentionally or otherwise. Think of it as a cheat sheet for first-time entrepreneurs (and a fair amount of journalists, too) or, as Marc Andreessen described in a tweet, “how to not commit fraud when raising money.”
https://twitter.com/pmarca/status/634911427506012160
Some of my favorites from the list are the descriptions of gross profit, customer lifetime value and churn, simply because I’ve found in my reporting that so many entrepreneurs calculate these in different ways. I’d also highlight the firm’s explanation of the difference between gross merchandise value and revenue because so-called vertical marketplaces, focused on selling one category of products, are popular now and are probably the biggest culprits when it comes to trying to pass off GMV as revenue with the press. The entrepreneur Angus Davis tweeted out one such example last night.
https://twitter.com/angusdav/status/634917089539715072
You can read the full explanation of all 16 startup metrics here.
This article originally appeared on Recode.net.
