On models of Growth companies v Value companies...

Companies sometimes try to be what they are not. 

At the risk of being binary, either you are a growth company, or a value company.  A growth company is growing revenue, adding new logos, etc.  Value companies, on the other hand, are generally more sticky with customers, but struggle to grow.  There is nothing wrong in either state - a growth company and a value company could both provide sufficient value to investors.  But managements need to realize and accept what they are, and operate that way.  Value companies have to be more efficient with their capital.  They need to be profitable and yield cash.  If they don’t, then it’s hard to get investors to stick.  It's possible for value companies can become growth companies via inorganic opportunities and M&A.  But that's true only if they acquire something that gives them access to a material TAM.  They grow in an adjacency to leverage existing competencies, and have new conversations with customers.  If, on the contrary, value companies do m&a in their core business and are merely sustaining that business, then it’s yet a value company.  Sell side investors see through this and value such a company accordingly. 

On valuation of private companies...

Valuation generally tends to be a complicated topic.  Often wall street analysts use their own models, comparables, and multiples to assess value of companies and shares.  But in case of private companies, valuation involves a lot of judgement/subjectivity.  Often value of private company shares is determined based on: 1) the last fund raise, or 2) independent valuers (that provide a 409A valuation report), or 3) (worst) a judgement call by the founders.  None of these are overly reliable.  Last fund raise value could be inflated depending on the excitement of the investor, or the true value of the business could, in reality, be lowered by other structural nuances.  The investor could've asked for anti-dilution clauses (to cap their downside risk - indicating that the value at which they've invested is inflated), or could've received warrants (which, when liquidated, lowers the per share value).  The independent valuers report is usually skewed by level of optimism shown by the management's projections, and the founder call is the least reliable.  

Of these, 409A report should be considered more reliable of the three (especially when the last fund raise happened a while back).  This report, even though based on management's projections, is subject to statutory audits and auditors will question material under achievement to the projections in 409A.  It's because of this very reason, 409A valuations are determined using conservative projections - projections that are closest to expected reality.

On Software Capitalization...

The purist answer on "whether to capitalize software" is you don’t have a choice. Either you have to capitalize, or you don’t.  In SAAS companies, software is not licensed.  SAAS companies offer a service on top of developed software.  As such, software is deemed to be for internal use and hence capitalization is normal.  The difficulty is, if you have too much depreciation and you are valuing the company on an EBITDA multiple (and many early stage companies do value themselves on EBITDA multiple), you are missing a key part of your financials. Investors, over time, start to look at operating margins - and if this metric is not handled carefully, it can start to bite the management. The other challenge is the level of subjectivity in assessing capitalizable software.  Often managements use capitalization as a lever to manage P&L/margins, and auditors understandably tend to get uncomfortable with too much subjectivity.  As such, it is critical to have appropriate controls on this line item.

On External Disclosures...

It is important for a company to have a plan for its external disclosures. Disclosures are for financial metrics, business metrics and the controls around them. It is important that these metrics have sound controls around them before they are disclosed. You can’t make a statement about restating a metric because of data or calculation error. It affects the credibility. It is also important to select the right metrics. They need to be close to the business to reflect the health. They should also trend in the right direction - else the value will be impacted. The last piece to bear in mind is the number of metrics. If we disclose too many, it’s too much disclosure. You can consider stopping disclosures, yes… but then the street becomes suspicious. So you need to Telegraph it appropriately. As cfo it is important to consider these dynamics for ipo readiness. 

While considering metrics taking a funnel approach helps at times:  the metrics you want to report, the definitions to calculate those metrics, the data needed to calculate the metrics, the controls (cleansing, auditability, etc) needed around the data, and source of the data.  

Several companies go public with material weaknesses in their control environment. It is common for companies to NOT incur the cost and overhead to eliminate all material weaknesses till they have to. But it is important to be aware of them and have a fixing plan. As audit committee chair, it was important for us to have an annual plan on what areas we will address and review through the year - accounting standards across entities (ifrs v us gaap), process weaknesses, consolidation mechanisms, ppa approaches, systems, etc.