For “late seed” investing (what I mainly do), I’m looking for them to be about 90% correct.

So what I do is having a financial firm track the cash for me. Dig into the bank statements, Stripe, etc. to make sure the cash in and cash out match the financial statements.

Most start-ups don’t actually get the accounting right:

  • Mostly, they book cash received as revenue. That’s often not 100% accurate, but it’s mostly OK for early stage.
  • Sometimes, they book “LOIs” and not-yet-earned revenue, and not-quite-signed contracts as revenue. That’s not OK.
  • Also, making up things like “Quarterly MRR” is not OK.

If cash-in and cash-out is correct, and the MRR reported is mostly GAAP accurate, that’s enough for me.

And for the most part, if there’s no cash-in yet … there’s no customer yet.

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