Do Financials Really Matter?

Feb 8

Good morning! It's been quite a weekend with the tech-media discourse online (both in India and the US) and Tom Brady has won his seventh Superbowl (for the few of you that care). It was a great game and further cements Brady's legacy as the Greatest Of All Time - not bad for someone who was the 199th pick in the 2000 NFL draft. Coming to my column today, I thought I'd talk a bit about media companies reporting on startup financials.

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Do Financials Really Matter?

Annually, around this time of the year, startups file their financial year results with the Ministry of Corporate Affairs (MCA) and since the data is available in the public domain, a lot of the popular tech media publications push out analyses of it. As you would assume, the high-profile startups' results are discussed a lot (on Twitter, WhatsApp, you name it) and a couple of weeks' later we all forget about it.

It is important to note that the data is from the previous year (the data currently being announced is for the Financial Year ending in March 2020). This year, CRED's results have made the most noise so far when Entrackr published a report with the title - "Kunal Shah’s CRED spent Rs 727 to earn a rupee in FY20"

Now, I have nothing against Entrackr. In my opinion they do a fairly good job of reporting and breaking stories while staying unbiased, but it's not hard to see why they'd use an eye-popping title like this. The response that followed, of course, was all over the place with some explaining why archaic accounting metrics might not be the best way to analyze startups, to others calling investors stupid or trying to cancel the publication.

This is nothing new. Last year we (and I include myself here) went on about Sharechat's lack of revenue, but if the company showed a billion dollar outcome this year, we would laud it as a success story. The issue might be the fact that these financial reports are released with limited context and without the acknowledgement that many of these companies do not claim to generate profits or revenues.

For example, this year Khatabook and OkCredit both had losses as was expected. These are two companies competing with each other, and other competitors, in a battle to capture the Indian MSME market. Neither of the companies has claimed that they plan to generate meaningful revenues yet and are still burning cash. So the question remains- who benefits from publishing their financial year results?

The other real issue I have with this reporting, especially in 2021, is that post FY20 we were in a literal pandemic that completely changed the business outlook for most startups, and their FY21 results would look very very different than their FY20 ones. So what is the the point on even engaging in this kind of analysis? Moreover, given the kind of fundraising environment that we're currently in, it makes sense for companies to focus on growth over revenue and profitability.

Tech publications in the country, at least the free ones, don't produce any interesting content other than the tons of funding announcements and advertorials and don't really understand the dynamics of venture-backed and venture scale startups. If they hope to stay relevant in 2021 and beyond, they might need to really step up their reporting and editorial work to add value and analysis. I do find some of the discourse around citizen journalism replacing media entities a bit misplaced, but it's also true that some newsletters do a better job of covering and explaining startups and tech companies in the country over the ad-supported publications.

Ultimately, I think publishing financial results on their own is quite useless. Sure it gets a couple of eyeballs for a day or two but in itself, I don't think anyone really cares about numbers without context. I'm also not saying that publications should not report financial results, just that it might be more helpful to talk about the company as a whole, like in this Forbes's story about Snapdeal and their recovery.

Also if you actually care about startup metrics, Sajith Pai (Blume Ventures) wrote a great thread:

🗞️ News of the week

  • Twitter restricted access to dozens of accounts in India following what they vaguely claimed was a "legal demand".

  • The Finance Minister, in the annual budget, proposed extending social security benefits to gig economy workers.

  • Gaming platform Mobile Premier League raised $95M from Composite Capital and Moore Strategic Ventures at a valuation just shy of $1B.

  • Zetwerk, a B2B manufacturing platform, raised $120M in a Series D round led by Greenoaks Capital and Lightspeed Venture Partners at $600M.

  • Indiagold, started by ex-Paytm execs Deepak Abbott and Nitin Mishra, recently raised a $2M seed round

  • SUGAR, the cosmetics company, has raised $21M in a Series C round led by Elevation Capital with existing investors A91 Partners and India Quotient

📰 What we've read and listened to this week

🎙️ Podcast of the week: The Twenty Minute VC- The Memo with Sequoia's Alfred Lin

📚 Book of the week: The Code: Silicon Valley and the Remaking of America by Margaret O'Mara

How did an otherwise unexceptional swath of suburbia came to rule the world? O'Mara's book is a very readable history of how Silicon Valley came to be