Germany has 4 cities with a population over 1 million.  China has 160! (Probably some metro area vs. city limits debate here, but that’s not the point.)  Look at the top 10 cities by Facebook usage.

No London, NY or Paris. All emerging markets (despite missing China).

The amount of aggregate attention in large cities in emerging markets is an important factor in many consumer internet businesses.  If you look at internet business models that require local execution, you’ll see that the geography you have to consider is more “city-denominated” rather than “country-denominated”.  It is not a surprise that the food delivery powerhouse YemekSepeti.com (the largest component of $5bn market cap Delivery Hero) came from Istanbul.  When you evaluate local commerce businesses such as Yelp or Groupon, looking at it city by city is more meaningful than looking at it country by country.

We get approached by ~1200 companies per year and spend some time with about 400 of them.  One of the key filters for us to identify opportunities we may be interested in is how quickly we can grasp the basics of the business’s economics; i.e. how value gets created.

In most cases, the best way to observe this is the income statement.  That is why it’ s important to show some granularity primary line items in the income statement. Viewing the income statement across a meaningful time span, you can start connecting the dots and get a feel of how the business creates value.

However, in some cases, we look at income statements in which the value chain is not obvious.  We view this as a bit of a red flag.  We try to work with the founders to dig and understand the value drivers, but experience shows that if a founder is having difficulty explaining the fundamental economics and the way value is created within a few lines on her business plan, it’s likely that their model is flawed, or worse, they don’t fully understand it themselves.

Warren Buffett warns that a business you invest in should be simple and understandable.  We agree.

“The company has been growing by 120% YoY.”

We see similar statements in announcements, press releases and pitch decks everyday. The moment I see percentages, I start thinking about what the company is trying to hide. Most often, it is the fact that it is still tiny.

I can understand this when it’s a general announcement.  You want to get the public’s attention amd impressive numbers (even if they are just percentages) rend to achieve that goal.  For B2B ventures, you may not want to remind your clients that you are still very small, so you try to direct attention to growth rate rather than size.

However, when you are talking to investors, I hoghly recommend disclosing absolute numbers early on. Of course, momentum is important. But, so is size and scope. At least expressed as an order of magnitude.

Last night, Barcelona came back from a 0-4 deficit from their first leg defeat against PSG, to win 6-1 and advance to the Champions League quarter-finals.  It is the most dramatic score in the championship’s history.

The sports press, naturally, is beside itself, lauding the victory as a miracle.

However, it seems like miracles happen to those who have aggregated the necessary resources and toiled tirelessly.  You put Messi, Neymar, and Suarez on your team, and then, sometimes, they pull off the impossible.

We see the same in the best companies.  You sacrifice, bring together the most talented professionals, work, work, work and then one day, you have pulled off a miracle.