4 ms·

I wonder if that kind of thing could lead to the crowdfunding marketplace doing some basic due diligence, though I suspect they don't want the risk.

by jonlucc 11y ago

jackgavigan 11y ago
Well, they could require that companies raising money get an audit done. That way, the crowdfunding platform isn't doing the due diligence - they're simply requiring that the company gets an accountants firm to do it. Auditing companies is a fairly common and well-understood process. I would imagine that the market for such services is fairly competitive, so the cost shouldn't be unreasonable. I think that a problem with GAAP is that, while it's designed to represent a standardised view of a company's accounts, it can be quite complex and isn't necessarily particularly easy to understand, which can end up being counterproductive. For example, out of curiosity, I went and looked up Hortonworks' Q4 2014 results[1] to see if they had, indeed, reached a $100m run rate by the end of 2014. Two revenue numbers are listed. GAAP revenue was $12.7m and "non-GAAP" revenue was $16.7m. The $4m difference turns out to be a "contra-revenue" booking relating to a Yahoo! warrant (effectively options that were issued to Yahoo!) that became exercisable when the company IPO'd (which was during that quarter). It appears that the Yahoo! warrant was granted as part of a deal in which Yahoo! committed to being a client Hortonworks and, hence, GAAP required that the $4m in cumulative revenue that Hortonworks had received from Yahoo! as a client, be deducted from the revenue for that quarter (even thought that revenue was generated over the course of several years), and that the rest of the $52m "cost" of the warrants (they effectively allowed Yahoo! to buy 3.25m shares for $0.01 per share, versus an IPO price of $16, yielding a "fair value" of just under $52m) be recorded as a cost of sales for that quarter, turning a non-GAAP gross profit of $6m into a GAAP gross loss of $46.2m. I'm not an accountant but I did do introductory courses in financial accounting and management accounting as part of my MBA, and it took me a good half an hour to fully get my head around that particular adjustment - it's not until you dig into the numbers that you realise that the GAAP loss is the result of a one-off accounting adjustment, and doesn't fully reflect the underlying business. I can imagine that your average retail investor would be somewhat bemused when faced with two very different P&L numbers. 1: http://hortonworks.com/press-releases/hortonworks-reports-financial-results-fourth-quarter-fiscal-year-2014/ http://hortonworks.com/press-releases/hortonworks-reports-fi...

I wonder if that kind of thing could lead to the crowdfunding marketplace doing some basic due diligence, though I suspect they don't want the risk.

by jonlucc 11y ago

I wonder if that kind of thing could lead to the crowdfunding marketplace doing some basic due diligence, though I suspect they don't want the risk.

jackgavigan 11y ago

Well, they could require that companies raising money get an audit done. That way, the crowdfunding platform isn't doing the due diligence - they're simply requiring that the company gets an accountants firm to do it. Auditing companies is a fairly common and well-understood process. I would imagine that the market for such services is fairly competitive, so the cost shouldn't be unreasonable. I think that a problem with GAAP is that, while it's designed to represent a standardised view of a company's accounts, it can be quite complex and isn't necessarily particularly easy to understand, which can end up being counterproductive. For example, out of curiosity, I went and looked up Hortonworks' Q4 2014 results[1] to see if they had, indeed, reached a $100m run rate by the end of 2014. Two revenue numbers are listed. GAAP revenue was $12.7m and "non-GAAP" revenue was $16.7m. The $4m difference turns out to be a "contra-revenue" booking relating to a Yahoo! warrant (effectively options that were issued to Yahoo!) that became exercisable when the company IPO'd (which was during that quarter). It appears that the Yahoo! warrant was granted as part of a deal in which Yahoo! committed to being a client Hortonworks and, hence, GAAP required that the $4m in cumulative revenue that Hortonworks had received from Yahoo! as a client, be deducted from the revenue for that quarter (even thought that revenue was generated over the course of several years), and that the rest of the $52m "cost" of the warrants (they effectively allowed Yahoo! to buy 3.25m shares for $0.01 per share, versus an IPO price of $16, yielding a "fair value" of just under $52m) be recorded as a cost of sales for that quarter, turning a non-GAAP gross profit of $6m into a GAAP gross loss of $46.2m. I'm not an accountant but I did do introductory courses in financial accounting and management accounting as part of my MBA, and it took me a good half an hour to fully get my head around that particular adjustment - it's not until you dig into the numbers that you realise that the GAAP loss is the result of a one-off accounting adjustment, and doesn't fully reflect the underlying business. I can imagine that your average retail investor would be somewhat bemused when faced with two very different P&L numbers. 1: http://hortonworks.com/press-releases/hortonworks-reports-financial-results-fourth-quarter-fiscal-year-2014/ http://hortonworks.com/press-releases/hortonworks-reports-fi...