In today’s VentureWire Alert, the lead blurb is about Innerworkings’ upcoming IPO. It comes only 4 months after NEA invested. Why they took money from NEA when they were already profitable and four months from an IPO is a mystery.
What caught my eye was this line: “Innerworkings takes full title and risk of loss for the printed products it gets for clients.” That’s remarkably similar to the language in SAB 101 which determines whether to book revenue as gross (= higher) or net (= only the transaction fee). Two of the four SAB 101 factors to consider are whether the company:
“2. takes title to the products,
3. has risks… such as the risk of loss”
Booking the whole transaction as revenue, instead of just the transaction fee, is why their gross margin is 20% – and why their revenue is so high.
Innerworkings spent a third of its description in VentureWire justifying the accounting choice that leads to the highest possible revenue. They’re profitable, but they raised venture capital from NEA. Four months later they file for an IPO to raise $50M more. They sound worried!
Maybe because we’ve seen this movie before. It’s Priceline. It has a not-so-happy ending.
Related Tags: Bubble 2.0, Innerworkings, venture capital, accounting, NEA, New Enterprise Associates
Thursday, May 11, 2006
Bubble accounting is back
Posted by John Rodkin at 2:56 PM
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1 comments:
That reminds me of an interview I once had with Jerry Kaplan and his COO at OnSale (a late 90's eBay look-a-alike.) Much of the interview was dedicated to seeing how creative I could be in pushing through the total value of the equipment they were selling on consignment through to revenue so as to ensure themselves plenty of revenue for market capitalization purposes at the IPO. This is at the same time Ebay was focussed on making PROFITS, without any motivation to inflate top line revenues. We know who got that right. It's amazing how some folks can lose sight of the simple fact that profits and the resultant cash flow are what make a company successful.
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