I started a b2b during the last bubble. It was common then if you brokered say a $10,000 sale to claim the entire value as part of your gross sales instead of just the commission you earned for facilitating it.
I fought it, never felt comfortable representing my company's financials that way. When the bubble burst it disappeared. Now sixteen years later this type of accounting has returned.
Brad Feld blogged today about something that was also very common in the late nineties:
“people don’t talk about what they’re making. all anyone talks about is raising money”
Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board?
(Got around the paywall: C-level execs are taking huge compliance risks by giving unauditable statements before and during flotation.)
With regards to a quote in the link: "Our purpose here isn’t to make money. Our purpose is to acquire and serve customers. Making money is the logical consequence of doing our jobs well, but it isn’t our purpose."
I am baffled. Think about what stakeholders you can service if making money is a (possible) consequence of doing your job well, but not your purpose. In my Peter Drucker-inspired econoverse, that's a pretty short lifespan you've got ahead of you. One day or another, that bottom line catches up with you.
Thanks, you're right. Did not know that US GAAP is adopted by the SEC. I'm more familiar with IFRS and Dutch GAAP which (at least partly) matter for any corporation that is registered in the Netherlands.
>>Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board?
Regardless of the legality, responsibility should ultimately fall on the shoulders of the investor to require financial reporting be done in a way that is acceptable to that investor, before they hand over money to the company. This may not be as true in publicly traded companies, where many amateur investors are participating in the market. The same goes for angel investing, if only because many companies at that stage may be pre-revenue or even pre-product. However, at the VC level, millions of dollars are invested to scale supposedly sound businesses. VCs should be sophisticated enough to manage this risk, and if I were an LP looking to put my money in a VC fund, I would be very concerned about putting my money in a fund that didn't have some sort of required standard financial reporting practices for all portfolio companies.
I fought it, never felt comfortable representing my company's financials that way. When the bubble burst it disappeared. Now sixteen years later this type of accounting has returned.
Brad Feld blogged today about something that was also very common in the late nineties:
“people don’t talk about what they’re making. all anyone talks about is raising money”
http://feld.com/archives/2015/06/get-information-entrepreneu...
There may not currently be a bubble, but a lot of the bad stuff from before is becoming standard practice once again.