A public company has to disclose a good deal of information. That is the trade-off. In exchange for the ability to tap public markets, the country’s financial system regulates that these companies publish financial information a few times a year and annually. Of course, we could have an endless debate about whether companies truly disclose what needs to be disclosed, and whether they arrive at numbers using consistent methodologies and generally “accepted” standards.
One of the benefits of being a private, closely-held company is that these disclosure rules do not apply. Outside of disclosing key metrics such as MAUs or rate of revenue growth to potential partners, potential hires, and/or potential investors, a private company is under no obligation to share their metrics.
Yet, in the current media world of blogs and Twitter, everyone wants to be in the know on the numbers. The new chattering classes want to do their own market sizing and calculations, and part of that equation is to have transparency on key metrics. Some early-stage companies have legitimate reasons for not disclosing their numbers. Of course, the public wants to know, and therefore the press and blogging community has no choice but to poke around and ask for it. No shame in trying, right?
However, it’s worth keeping in mind that literally every single early-stage startup we talk about every day has absolutely no obligation whatsoever to share these details. In some cases, startups will create and market their own puffed up numbers, what many refer to as “vanity metrics,” or metrics that are extracted to make it sound like a startup is growing, or gaining traction, and will get picked up by the media and influencers and spread the good word about the future of this or that company.
In this way, “vanity metrics” are often just a decoy to shift attention away from a company’s numbers. In my opinion, many companies don’t want to share their deepest metrics with bloggers or the public because, unless the growth is bonkers (say, like for Pinterest), a bunch of armchair valuation experts with a Twitter handle will start doing things like this, to paraphrase: “Startup X123 just raised at a $300MM valuation, but only has 48,000 MAUs. So, the investors are placing a LTV of $1.xM per user?!” And so forth. The math above is intentionally faulty, but you get the gist.
A founder or a company doesn’t have to share their key metrics with the press or bloggers, or the public at large. Once they do, they are opening themselves to have the Jim Cramers of the Twittersphere start barking about their value, about how the business isn’t growing, or how it all doesn’t make sense (to them, of course, typically because they don’t use the product). I’m not saying that growth isn’t important. It most certainly is. And in the long-run, the truth will come out. No company can “vanity metric” their way out of failure. But for some founders who are making large bets in complex markets, investing a lot of their own money, time, and energy, and who want to take a big swing in the face of a binary world, they have little incentive to let others define their product, growth, or existence.