6 ms·

Why does it matter? You are changing the financial picture, probably by an order of magnitude or more. The question should be what the company will look like af

by sjburt 5y ago

Why does it matter? You are changing the financial picture, probably by an order of magnitude or more. The question should be what the company will look like after the investment, not before.

darksaints 5y ago
Ummm...in order to know what the company looks like after the investment, you need to know what the company looks like before the investment.
- ladon86 5y ago
  In PG’s era of YC, it generally looks like 2 guys with 2 laptops in the cheapest apartment in Mountain View.
  - darksaints 5y ago
    And that two guys with laptops in a cheap apartment in mountain view might be a majority of the cases they see, but how will they know unless they see it? I've seen plenty of fake-it-til-you-make-it startups that immediately go out an sign a lease for AAA office space because they think they need a cool office before anybody will take them seriously. And that is a massive red flag to a VC...one that shows up on a balance sheet. For an early stage company, nobody cares about your assets or your shit estimates of the value of your intellectual property or goodwill. But payables and receivables can definitely be a dealbreaker, and I've never known a single VC that would sign a check without an understanding of where the company, no matter how new, stands with them.
    - beambot 5y ago
      Financially, YC's decision made sense regardless of balance sheets or business plans: YC was investing at a $1.5M valuation (7% for $100k). By selecting a pair of smart engineers, the acquihire potential often exceeded the invested value. Furthermore, their interviews cut to the underlying cause (scrappiness & maker mentality), which inherently eliminated certain effects (AAA office spaces) without ever seeing a balance sheet.
    - enra 5y ago
      I raised $4M seed round on a SAFE from two well known multi $B fund and others. I don’t think anyone asked for a balance sheet. The company was 3mo old, so there wasn’t much (no revenue, hardly any expenses) and we didn’t even have an accountant yet. There was some basic due diligence questions that us founders had to answer but very light still. I’d assume most seed deals on SAFEs or even priced rounds are similar.
- deleted 5y ago
  [deleted]
- icedchai 5y ago
  I've looked at several startup business plans and financial models. Not one has turned out to be even close to reality a few years later. At the early stages, the numbers are pure fantasy.
  - doctor_eval 5y ago
    But a balance sheet is not a financial model. It shows how much money is in the bank, how much people owe the company - and how much the founders have loaned the company. PG might not personally read balance sheets but if nobody checks them at all, it would be pretty weird.
- tomhoward 5y ago
  Please don’t start comments in that patronizing way. This field is highly counterintuitive. It’s easy to feel smart by parroting the obvious-seeming positions whilst being utterly wrong. To your point: when YC interviews companies, they are mostly very early stage and pre-revenue. What YC cares about is how much money they could make if everything goes right, and whether the team is capable of making everything go (close enough to) right over the long term. The current financial picture has minimal bearing on that. Obviously, to the extent that it does have a bearing, YC is smart/experienced enough to consider that. But again, you can glean this from a conversation better than an accounting document.
  - darksaints 5y ago
    Even if you are an early stage company, you've still got to have something resembling the concept of a balance sheet, even if it's an excel spreadsheet with a list of two computers, a bank account, and an AWS bill that hasn't been paid yet. Maybe he's right that he personally has never read a balance sheet, but for literally any company that has already formed before the investment, they would be extremely foolish to overlook it. I've personally seen A-rounds fall through because of balance sheets...turns out that when you promise hundreds of thousands of dollars in future services in exchange for a little bit of present cash flow, it can drastically affect your balance sheet and prospects for future investment.
    - tomhoward 5y ago
      I feel like this is something that’s really important to you for some reason, and as such you’re getting more wound up about it than necessary. Yes, companies need to mindful of their finances and cashflows. Everyone knows that, PG included, as I conveyed in another comment. The real point that PG is making here is that an early stage company with perfect books but no exciting product or market opportunity is dead, whereas one with incomplete bookkeeping but an incredible product and market opportunity is much more likely to be a good investment.
      - darksaints 5y ago

by sjburt 5y ago

Why does it matter? You are changing the financial picture, probably by an order of magnitude or more. The question should be what the company will look like after the investment, not before.

darksaints 5y ago

Ummm...in order to know what the company looks like after the investment, you need to know what the company looks like before the investment.

ladon86 5y ago
In PG’s era of YC, it generally looks like 2 guys with 2 laptops in the cheapest apartment in Mountain View.
- darksaints 5y ago
  And that two guys with laptops in a cheap apartment in mountain view might be a majority of the cases they see, but how will they know unless they see it? I've seen plenty of fake-it-til-you-make-it startups that immediately go out an sign a lease for AAA office space because they think they need a cool office before anybody will take them seriously. And that is a massive red flag to a VC...one that shows up on a balance sheet. For an early stage company, nobody cares about your assets or your shit estimates of the value of your intellectual property or goodwill. But payables and receivables can definitely be a dealbreaker, and I've never known a single VC that would sign a check without an understanding of where the company, no matter how new, stands with them.
  - beambot 5y ago
    Financially, YC's decision made sense regardless of balance sheets or business plans: YC was investing at a $1.5M valuation (7% for $100k). By selecting a pair of smart engineers, the acquihire potential often exceeded the invested value. Furthermore, their interviews cut to the underlying cause (scrappiness & maker mentality), which inherently eliminated certain effects (AAA office spaces) without ever seeing a balance sheet.
  - enra 5y ago
    I raised $4M seed round on a SAFE from two well known multi $B fund and others. I don’t think anyone asked for a balance sheet. The company was 3mo old, so there wasn’t much (no revenue, hardly any expenses) and we didn’t even have an accountant yet. There was some basic due diligence questions that us founders had to answer but very light still. I’d assume most seed deals on SAFEs or even priced rounds are similar.
deleted 5y ago
[deleted]
icedchai 5y ago
I've looked at several startup business plans and financial models. Not one has turned out to be even close to reality a few years later. At the early stages, the numbers are pure fantasy.
- doctor_eval 5y ago
  But a balance sheet is not a financial model. It shows how much money is in the bank, how much people owe the company - and how much the founders have loaned the company. PG might not personally read balance sheets but if nobody checks them at all, it would be pretty weird.
tomhoward 5y ago
Please don’t start comments in that patronizing way. This field is highly counterintuitive. It’s easy to feel smart by parroting the obvious-seeming positions whilst being utterly wrong. To your point: when YC interviews companies, they are mostly very early stage and pre-revenue. What YC cares about is how much money they could make if everything goes right, and whether the team is capable of making everything go (close enough to) right over the long term. The current financial picture has minimal bearing on that. Obviously, to the extent that it does have a bearing, YC is smart/experienced enough to consider that. But again, you can glean this from a conversation better than an accounting document.
- darksaints 5y ago
  Even if you are an early stage company, you've still got to have something resembling the concept of a balance sheet, even if it's an excel spreadsheet with a list of two computers, a bank account, and an AWS bill that hasn't been paid yet. Maybe he's right that he personally has never read a balance sheet, but for literally any company that has already formed before the investment, they would be extremely foolish to overlook it. I've personally seen A-rounds fall through because of balance sheets...turns out that when you promise hundreds of thousands of dollars in future services in exchange for a little bit of present cash flow, it can drastically affect your balance sheet and prospects for future investment.
  - tomhoward 5y ago
    I feel like this is something that’s really important to you for some reason, and as such you’re getting more wound up about it than necessary. Yes, companies need to mindful of their finances and cashflows. Everyone knows that, PG included, as I conveyed in another comment. The real point that PG is making here is that an early stage company with perfect books but no exciting product or market opportunity is dead, whereas one with incomplete bookkeeping but an incredible product and market opportunity is much more likely to be a good investment.
    - darksaints 5y ago