Making startup finance more efficient #1 - Metrics
Thursday, October 18th, 2007Dave McClure posted a really interesting post a few days ago, the gist of which was
“imagine: if you could measure startup performance more accurately, and if you could do company valuation more accurately, and there was a liquid market for quick, efficient transactions based on standardized metrics & standardized online transactions documents… what would happen?”
That would be really cool. I have a few ideas on the topic, which I will outline in a few posts.
First, if a startup wants to maximize their market value they should provide as much information as possible to the public (or at least to a wide range of investors and acquirers). Eric Olsen had some insightful thoughts on the topic of metrics in this context.
For web-based businesses the product is free for all to see, the only three “secrets” are:
- Traffic sources and magnitudes
- Financial statements
- Some quantification of the effort that has gone into coding the product. Who worked on it, for how long, etc
with that information the market could make a reasonably fair estimate of the value of the company.
The downside to releasing all that information to the public is that it might allow competitors some strategic benefit. For example, they could see what traffic sources of the site and make moves to attract traffic from the same source, such as search engine optimization around a popular keyword. I think this is a minimal concern, but people and companies are often quite weird about their data, liking to keep secrets where it doesn’t always make sense.
