3 views on why startup math may soon get a lot more creative

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Given this year’s changing venture capital climate, it’s not a stretch to imagine that we’re going to see a lot more of the following: down rounds disguised as extension rounds, recapitalization events conflated with secondary activity and vaguely defined references to growth, burn and other key startup metrics.

As the downturn threatens the ability of companies to meet growth targets, simultaneously emphasizing the need for them to get there faster while not losing too much money, we expect to see more creative math from founders.

We are somewhat accustomed to founders bigging up their wins and spinning their losses, but such sins can threaten to become whole-cloth heresies during a downturn. Of course, it’s not all out of malice. For decades, those within startup land have not been able to agree on a definition for recapitalization or, heck, even bootstrapping, because the terms in and of themselves are so vague.

Every few months, Tech Twitter wants to rethink how we name rounds, for example. But the terms are relative, and it’s the job of a journalist to get as close to the truth as possible (and push back when fluff is used as a replacement for truth).

In this column, Natasha Mascarenhas, Haje Jan Kamps and Alex Wilhelm talk through what the year’s data reporting could look like and what they are expecting to see or, perhaps more precisely, what they don’t want to see. The column is a companion piece of sorts to a recent Equity podcast debating the same topic. Check the pod, and then dive into the extended takes below!

Natasha Mascarenhas: Growth is subjective, sadly

It’s probably not surprising that I, a journalist, enjoy clarity from the companies that I speak with on a day-to-day basis. I’m talking specifics over generalizations, data over drama and proof that you’re growing versus promises that you are. As a result, whenever a startup shows an allergy to being put into a very clear box — as simple as having raised a Series A — it’s both a pet peeve and a question of inaccuracy.

Why? Growth is subjective, sadly, which means that oftentimes private companies (which are not required to share their financials publicly) can float a semblance of it without many repercussions. For example, a startup’s revenue may have grown 100% year over year, but that can either be from $1 to $2, thanks to its first customer, or $5 million to $10 million; who’s to say? Sometimes that example in and of itself can get a founder to tell me the true range of their growth, but it often means I need to place an asterisk next to any vague growth metric I include in stories.

SOURCE: TECHCRUNCH

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