I picked this tweet up which was written by a very respected VC partner and recommended by another very respected VC partner.
I thought - great, I will get some insight from some people who have been in this business longer than me with great track record. What you will find if you read the article is a very basic look at the elements that make up a company's profit & loss account.
I, of course, accept that this is a very important part of any business. The surprising part about the article was the implied assumption that the readers are not very well versed in the various parts of the P&L.
There has been much debate recently about the VC industry and the its business model. I think that also what needs to be debated is the type of mind-set that VC's have created amongst management of the companies that they back.
At Goldrock, we have recently seen a number of companies that have made the initial sales breakthrough reaching several million $'s in sales. However in too many cases this has been at the expense of too much equity capital that has been invested over the previous years, leaving the company in what I call "cap-table trap"!
If managers are used to going back to their VC "sugar daddy" every year for more equity money then they have little or no incentive to worry about basic things like receivables and payables (for the un-initiated, the money a company is owed or owes its trading partners).
In the long term all of us on the investing side need to pay attention to the capital efficiency of our investing models, whether it is at the sharp end of the VC world or the less dramatic world of growth investing or private equity. If we do not, our LP's will not find the justification for supporting this type of investing.
The debate on the VC/PE model must continues, but must also drive everyone on the gravy train to be honest about the way they are achieving returns and the true risks taken in order to make them.