Comprehensive and piecemeal data sharing
There are two ways in which companies share their data with their existing investors. They either do so in a comprehensive or a piecemeal manner.
An example can help demonstrate what I mean by each. The P&L of an e-commerce company is relatively straightforward to understand so let’s use that as an example. The same argument holds for the KPI data of companies as well as companies with other business models.
A comprehensive approach to sharing an e-commerce company’s P&L data is to start off with gross revenue, subtract contra revenue items, state the net revenue, subtract the cost of goods sold, state the product margin, subtract variable expenses, state the gross margin, subtract marketing costs, state the contribution margin, subtract operating costs, state EBİTDA, subtract depreciation and amortization, net interest expenses, and taxes, and arrive at net income. This historical data is then presented on a monthly basis since the company’s launch.
A piecemeal approach is to state net revenue in a particular month, the growth of net revenue during a specific time period, the gross margin in the final month, and the EBITDA in that same final month. This naturally leads to the question of why these data points are being presented and not the others. Why is the company giving the investor specific pieces of a puzzle to solve rather than the complete picture?
The answer is very often that the solved puzzle doesn’t paint a great picture.
Originally published at Thoughts of a VC.