The Market-Based Case for Covering Startups’ Financial Data

One of the foundational academic works business students read and discuss is George Akerlof’s 1970 paper, “The Market for ‘Lemons.’” Akerlof, a Nobel Prize winner, described a problem in the used car market: Buyers have less information about the quality of the car than sellers do. They can’t see the defects in low-quality used cars, or “lemons.” This leads the buyer to assume all used cars are of roughly average quality, hurting the sellers of high-quality used cars. 

One lesson is that these information gaps—or information asymmetries, in academic parlance—can hurt markets. Sometimes I like to say that part of my job description in reporting on the market for private tech companies is to reduce information asymmetries. My colleagues at The Information and I do that by reporting on what’s happening behind the scenes at private companies, understanding their progress and challenges, and finding out basic financial information about their performance.