Metrics & Performance
GAAP vs. Non-GAAP
Last updated
Quick Answer
The difference between standardized accounting principles (GAAP) and company-adjusted metrics that exclude certain items for a 'cleaner' view of performance.
What it is
GAAP (Generally Accepted Accounting Principles) are standardized accounting rules that all public companies must follow. Non-GAAP metrics are adjusted figures where companies exclude items like stock-based compensation, restructuring charges, or amortization to present what they consider a more accurate picture of operating performance. In venture, both early-stage and late-stage companies commonly use non-GAAP metrics.
In Practice
The Series C company reported $5M in GAAP losses but highlighted $2M in non-GAAP profit by excluding $7M in stock-based compensation from the calculation.
Operational context
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Why It Matters
The gap between GAAP and non-GAAP numbers can be enormous, especially at companies with heavy stock compensation. Investors who only look at non-GAAP metrics may overestimate profitability.
VC Beast Take
Non-GAAP is where companies hide the bodies. Always check what's being excluded before believing the adjusted numbers.
Term Family
Related concepts
Frequently Asked Questions
What is GAAP vs. Non-GAAP in venture capital?
GAAP (Generally Accepted Accounting Principles) are standardized accounting rules that all public companies must follow. Non-GAAP metrics are adjusted figures where companies exclude items like stock-based compensation, restructuring charges, or amortization to present what they consider a more...
Why is GAAP vs. Non-GAAP important for startups?
Understanding GAAP vs. Non-GAAP is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does GAAP vs. Non-GAAP fall under in VC?
GAAP vs. Non-GAAP falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
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